In this article from Artemis, Cory Anger, Managing Director, GC Securities, discusses how capital from entities other than insurance-linked securities (ILS) specialists has been entering the catastrophe bond market.
Cory said that returning investors are now being seen in the market, likely attracted by catastrophe bond spread returning to near-record highs. This is helping provide balance to the market, addressing any concerns that could be generated regarding capacity.
“As a result of widening risk spreads and more resilient structures, non-ILS-specialist capital is re-entering the 144a catastrophe bond product, with most of this capital typically coming from institutions that have ILS investing experience at some point over the market’s 20-year-plus history,” Cory continued. “This capital, while price sensitive, is having a stabilizing influence on the amount of capacity available in the market.”
However, investors still need to see clear benefits of allocating to the ILS market and catastrophe bonds, Cory maintained, with relative performance compared to other asset classes still important despite the higher yields.
“It ultimately depends upon whether the attributes of the current ILS space yields (with approximately 50% increase from Q1 2022 to Q4 2022) are viewed favorably relative to traditional capital markets yields (given the stress that global economies have been facing due to inflation and rapid interest rate increases),” she explained. “Investors value the low correlation but remain concerned about risk assessment keeping up with the impact of climate change.”
Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the United Kingdom by GC Securities, a division of MMC Securities Ltd., which is authorized and regulated by the Financial Conduct Authority. Securities or investments, as applicable, are offered in the European Economic Area by GC Securities, a division of MMC Securities (Ireland) Ltd., which is authorized and regulated by the Central Bank of Ireland, reference number C447471. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities Ltd., MMC Securities (Ireland) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh McLennan. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.