Insurance-linked securities (ILS) and catastrophe bonds investments are well placed to weather the current Covid-19 coronavirus pandemic situation, according to specialist reinsurance asset manager Twelve Capital.
The insurance and reinsurance market has a strong track record of coping with highly distressed market environments, Twelve Capital says.
As a result, it believes that the sector is well-positioned through the coronavirus crisis and for investor’s direct allocations to the risk, that are possible through ILS and catastrophe bonds, make an ideal defensive asset for broader portfolios.
“Catastrophe Bonds have not been affected by the recent financial market volatility,” the specialist manager explained.
Adding that as expected, “Insurance-Linked Securities (including Catastrophe Bonds) is the relatively most defensive asset class for investors presently, followed by credit, with equity by far the most impacted by market volatility.”
The catastrophe bond market has been, “Living up to its nature as an effective diversifying asset class,” Twelve Capital said, with the managers own cat bond portfolios continuing to earn coupons “without any major price action over the past two weeks.”
The manager noted that it does not hold any of the World Bank issued pandemic catastrophe bonds, which right now are seen as the only cat bond asset at significant risk of loss due to the coronavirus outbreak.
On secondary market trading activity for catastrophe bonds, Twelve Capital said that “Asset class market liquidity at this stage also appears to be unaffected, with healthy two-way flows.”
In addition, so far Twelve Capital said it has not noticed any significant shifts in investor sentiment, when it comes to cat bonds and ILS, with “the asset class continuing to be an attractive source of uncorrelated income.”
“As a result Twelve Capital continues to expect strong interest into the asset class given the recent market turmoil,” the manager explained.
– Cat bond market liquidity slows, as bid list fails to fully trade.
– Cat bonds demonstrate positive diversification characteristics: Plenum.
– Cat bond sell-off may slow new issuance until ILS fund inflows catch up.
– Coronavirus effect clear in cat bonds, but private ILS outperforms: Schroder Secquaero.
– Cat bond liquidity evident, as trading rises on Covid-19 volatility.
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