2020 a defining year for ILS as cat bonds roar back after COVID lull: Swiss Re

2020 a defining year for ILS as cat bonds roar back after COVID lull: Swiss Re

As insurance-linked securities (ILS) such as catastrophe bonds demonstrated their relative lack of connection to broader financial markets again in 2020, the year was another specifying one for the marketplace, Swiss Re believes.In its newest ILS market report, Swiss Re Capital Markets, the expert ILS focused unit of the global reinsurance firm, highlights some key happenings from 2020 that all recommend a market still in impolite health regardless of the global pandemic, particularly on the cat bond side.
” 2020 was another defining year for the asset class as the absence of connection to broader monetary markets was once again highlighted,” Swiss Re discussed. Adding that, “The worldwide market volatility seen at the outset of the COVID-19 pandemic developed a liquidity occasion that was rather temporary.”
Selling pressure impacted the secondary rates of disaster bonds in this period, resulting in a decrease and a short-term period of secondary spread widening, which triggered main issuances to be halted.
ILS markets held up well though, Swiss Re kept in mind, saying that, “In the medium term, we expect that similar to the 2008 monetary crisis, this low correlation performance will lead to renewed interest from end investors.”
The ILS market emerged from this preliminary pandemic associated uncertainty and volatility “mostly unharmed” and rapidly issuance returned, with disaster bond sponsors flocking to secure capital markets backed reinsurance defense.
The primary ILS market, for catastrophe bond issuance along with collateralized reinsurance, returned with a “roar” Swiss Re said.
Explaining, “Throughout the summertime brand-new investments were made into ILS funds and spreads tightened up throughout a strong 3rd and 4th quarter of issuance.”
More explaining that, “During this time, existing and new ILS sponsors, along with financiers, continued to reveal confidence in ILS as a dependable capability source that supplies attractive financial investment returns.”
” All said and done, the 2020 new issuance market exceeded the USD 9.0 bn in redemptions by around USD 2.3 bn throughout the year, demonstrating how strong the investor support of the possession class has become.”
The fact the ILS market revealed such strength through the pandemic and returned quickly to offer the crucial reinsurance capacity its sponsor-base required, is reflective of a well-functioning and robust asset class.
“At the end of 2020, the ILS market saw outstanding catastrophe bonds grow by approximately 5% year-over-year. This is an excellent achievement for the market considering the time out in new issuance throughout March 2020, the big volume of maturities and more than USD 668m principal decreases tape-recorded throughout the years,” Swiss Re stated.
The ILS market and catastrophe bonds have actually shown their absence of correlation and relative value for financiers in times of volatility a variety of times now, with each event resulting in an increase in investor awareness and interest in the ILS property class.
With existing investors showing self-confidence in catastrophe bonds and more cash streaming to cat bonds funds from the current investor-base, the heightened interest and awareness in this market amongst financiers not yet assigned guarantees to result in more inflows, as long as the item exists to invest in.
You can download all of Artemis quarterly catastrophe bond market reports here.

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