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Deutsche Bank to de-emphasise secondary ILS & cat bond trading


Deutsche Bank Securities Inc. is set to place less emphasis on its secondary catastrophe bond and ILS trading desk, while increasing its focus on other services it provides to the ILS market, from financing to prime brokerage.

Sources told Artemis that Deutsche Bank Securities has told its clients that it will no longer produce its pricing sheet, showing indicative marks for secondary catastrophe bonds and other insurance-linked security (ILS) structures.

We understand that the bank is set to focus on allocating its resources to other service areas it provides to the ILS and reinsurance markets, from prime brokerage, to offering leverage to investors, to financing, structuring and bookrunning ILS deals.

The world of secondary catastrophe bond and ILS trading is a competitive one, with a number of independent trading desks, other banks offering trading and reinsurer or reinsurance broker owned capital market units all competing for this business.

Likely another factor in the decision, is that the margin on secondary ILS trading is perhaps not as high as the many other activities that an investment bank like Deutsche Bank can offer to the ILS investor and sponsor community.

As a result it makes sense that Deutsche Bank would focus on the areas where it can provide services that offer the greatest value to its client base, in terms of advisory, structuring, prime brokerage etc, and naturally focus on the area where margins are going to be greatest.

In fact Deutsche Bank Securities has just acted as a joint structuring agent and bookrunner for Nationwide Mutual’s recent $300m Caelus Re IV Ltd. (Series 2016-1) catastrophe bond. With that deal having completed at the end of February, the Deutsche Bank Securities ILS team has now played a role in issuance of almost $5.4 billion of the outstanding cat bond market, according to Artemis data.

Secondary cat bond or ILS trading was likely never the largest part of Deutsche Bank’s activity in the ILS space, more of an added value service that as an investment bank it could naturally provide. We understand that the trading desk will not be closed and trades may still be executed for clients, but it is set to be de-emphasised, in terms of priority and as a result the pricing sheet will no longer be produced and distributed.

The Deutsche Bank Securities ILS team is also known for providing market insight to its clients, helping them  to understand ILS and reinsurance market trends and how they can impact investments in the space. The de-emphasis of secondary trading may help the bank to strengthen its position as a partner to clients, while shifting some resource to focus on activities that generate greater revenue and longer-term relationships with customers.

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