Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Renewed interest in non-traditional asset securitizations could spark cat bonds


Non-traditional securitized assets have been growing in popularity and receiving increasing levels of interest from investors and issuers alike. The solid performance demonstrated during the recent downturn and continuing attractive bond yields should help to keep investor interest strong in non-traditional U.S. asset securitizations through 2011 according to a report from Standard & Poor’s.

Standard & Poor’s have been looking at the trends over the last year and talking to market participants (investors, arrangers and originators) at a series of roundtable events held towards the end of 2010. The report ‘Renewed Interest In Nontraditional Assets Could Spark New Securitizations‘ available to subscribers of S&P’s RatingsDirect service, takes a look at some areas of non-traditional asset securitization in the U.S. and concludes that interest will increase in certain asset classes and decrease in others.

One of the areas likely to receive increasing attention over the coming year is catastrophe bonds and insurance-linked securities. These have been one of the best performing assets over the course of the downturn and as yields continue to be attractive investor interest is high. Issuers and arrangers in catastrophe bond transactions have been working hard to resolve issues caused by the total-return-swap collateral approach and we’ve seen a number of different collateral structures used over the past year. This hasn’t gone unnoticed by investors we’ve spoken to and some of our contacts cite that as one of the positives that puts cat bonds high up their list of attractive areas to invest in.

A positive outlook on the non-traditional asset securitization market as a whole can only be a positive for the cat bond market. If the sector receives an influx of interest from new investment sources, particularly from investors seeking new non-traditional opportunities, and the market innovates by issuing diversified transactions, then we could see a very positive year for cat bonds, even if total $ issuance isn’t much increased from last year.

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