Cat bonds still attractive vs corporate credit despite spread tightening: K2

While catastrophe bond and insurance-linked security (ILS) spreads have tightened during the second-quarter of 2021, hedge fund specialist manager K2 Advisors believes that they remain attractive relative to corporate credit and are a strategy investors should be focusing on.

Given the still uncertain world, as the recovery from the pandemic continues but challenges related to that and central bank policy remain, the hedge fund focused asset manager, which is a unit of investment firm Franklin Templeton, believes investors should be looking to focus their hedge fund investments on alpha generating non-directional strategies.

One of these is insurance-linked securities (ILS), an area that Franklin Templeton and K2 Advisors provide expertise and now also managed fund strategies, having launched its own UCITS catastrophe bond recently.

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Catastrophe bond market can expand further in 2022: Willis Re

The catastrophe bond market has a good opportunity to continue expanding and the current elevated activity could run right into 2022, according to reinsurance broker Willis Re.

In reporting on the mid-year reinsurance renewal season, after which the market is said to be approaching equilibrium, Willis Re explained that catastrophe bond issuance has been particularly strong, something the broker anticipates will continue.

As we detailed in our new cat bond market report, which we published yesterday, activity has been particularly brisk, with around $6 billion of 144A property cat bonds issued in the second-quarter of 2021.

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Today’s ILS Investor: A Catalyst for Change

The $90 billion insurance-linked securities (ILS) sector is undergoing a sea change, led by investors with significant experience in the industry and a heightened awareness of the need to marry their desire for non-correlated risk and attractive returns with the growing demand for responsible investment.

For most of the last 20 years, traditional ILS investors have been hedge funds, pension funds and other institutional investors. They look to the insurance and reinsurance sector for portfolio diversification as an alternative, non-correlating asset class that produces historically strong returns.

The more traditional appetite for ILS had been high-severity, low-frequency events with a short duration. Natural catastrophe perils, which until 2017 made consistently positive returns (for the most part), were a compelling investment target.

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Greater Bay Re registered for China Re cat bond in Hong Kong

We’ve learned that the first company destined to be an insurance-linked securities (ILS) special purpose vehicle has already been registered in Hong Kong, with Greater Bay Re Limited established to issue a catastrophe bond on behalf of China Re, sources told us.

It’s an important sign of the state of readiness of Hong Kong’s legislative and regulatory framework for insurance-linked securities (ILS), showing that the Special Administrative Region is now ready for ILS activity and to become a domicile for catastrophe bonds.

The sponsor is also particularly noteworthy, as we’re told it will be China Property and Casualty Reinsurance Company Ltd. (China Re P&C), part of China Reinsurance Corporation, one of the largest insurance and reinsurance companies in China, but also with a global footprint thanks to operations in Lloyd’s of London and Singapore, as well as offices in Hong Kong and New York.

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Cat bond activity may give multi-strategy funds room to expand

The acceleration of activity in the global catastrophe bond market over the last few months could now drive an opportunity for a number of multi-strategy investment funds to expand, as the availability of paper has increased even causing some investment managers to lift the shutters on closed funds, we understand.

Which could drive more capital to look at catastrophe bonds and perhaps other insurance-linked securities (ILS), or the more structured collateralised reinsurance opportunities such as sidecars.

Given a lot of the multi-strategy investment funds that look at cat bonds and other ILS are open to retail money as well, these investment managers would really like to see listed opportunities, or assets with greater liquidity, which could even drive interest among specialist ILS managers or reinsurance firms to revisit the listed fund strategy again.

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UCITS cat bond funds growing fast. Schroders overtakes GAM as largest

UCITS catastrophe bond funds as a group have increased their assets significantly over the last year, with accelerated growth of the cat bond market and rising interest in ILS investments helping to propel the UCITS cat bond funds we track to asset growth of roughly 58% in just one year.

Over that period, first place position for the largest UCITS cat bond fund has also changed, as Schroders has now overtaken GAM, after Schroders’ GAIA Cat Bond Fund overtook the GAM Star CAT Bond Fund (which is portfolio managed by Fermat Capital Management) in terms of assets held within the strategy.

At the end of May 2020, a group of 15 main UCITS cat bond funds had accumulated catastrophe bond assets of just over US $5.1 billion.

By the end of May 2021, just one year later, that figure had grown considerably, with the same 15 UCITS cat bond funds counting some US $8.05 billion of cat bond assets under their management.

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Franklin Templeton launches UCITS cat bond fund, managed by K2’s Malawer

Investment manager Franklin Templeton has launched a new UCITS catastrophe bond fund, which is portfolio managed by Jonathan Malawer from its hedge fund specialist manager arm K2 Advisors.

The Franklin K2 Cat Bond UCITS Fund is a Luxembourg based fund and part of the Franklin Templeton Alternatives Funds offering from the investment manager.

The new UCITS catastrophe bond fund will be widely marketed across Europe, being registered in eleven countries in total, including the UK, France, Germany and Italy.

The Franklin K2 Cat Bond UCITS Fund will be managed by K2 Advisors insurance-linked securities (ILS) and catastrophe bond lead Jonathan Malawer, Managing Director, Head of ILS, Commodities and Environmental Strategies.

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Franklin Templeton launches UCITS cat bond fund, managed by K2’s Malawer

Investment manager Franklin Templeton has launched a new UCITS catastrophe bond fund, which is portfolio managed by Jonathan Malawer from its hedge fund specialist manager arm K2 Advisors.

The Franklin K2 Cat Bond UCITS Fund is a Luxembourg based fund and part of the Franklin Templeton Alternatives Funds offering from the investment manager.

The new UCITS catastrophe bond fund will be widely marketed across Europe, being registered in eleven countries in total, including the UK, France, Germany and Italy.

The Franklin K2 Cat Bond UCITS Fund will be managed by K2 Advisors insurance-linked securities (ILS) and catastrophe bond lead Jonathan Malawer, Managing Director, Head of ILS, Commodities and Environmental Strategies.

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Cat bond growth propelled by strong investor demand: Moody’s

Moody’s has reported that the catastrophe bond market saw record issuance in 2020 despite a brief pause in Q2 following a particularly tumultuous period for the financial markets.

And looking ahead through 2021, the rating agency expects cat bond issuance to continue to grow with strong investor demand for the asset class, evidenced by a reduction in spreads and upsized deals seen over the last several quarters.

According to Moody’s future growth in the ILS market will likely be driven by pure cat bonds from traditional and non traditional sponsors as well as insurance-linked notes from mortgage insurers.

“The cat bond market has again proven resilient despite some losses and principal payouts, largely from prior period reserve development,” analysts said in a new report.

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The only asset class that helps people rebuild after natural disasters

A core reason that insurance-linked securities (ILS), such as catastrophe bonds and other reinsurance linked investments, are considered as socially responsible investments by many allocators is the fact they deploy their capital into natural disaster recovery and rebuilding.

While ESG, environment, social and governance factors, are now seen as becoming critical for insurance-linked securities (ILS) strategies future popularity, the truth is that at least the S (social) aspect of ESG has been firmly embedded in the majority of ILS right from the start.

We first wrote about the importance of ESG for the catastrophe bond and broader ILS market back in 2009, when for the first time we learned of a pension fund citing ESG as an important criteria for its consideration of investing in a cat bond fund.

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