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What kind of returns can I expect from cat bonds?
Entropics Asset Management – Cat bond investments
Cat Bonds are securities that transfer insurance risks from an insurer to the financial markets. This provides for insurance coverage for people and enterprises facing catastrophe risk. To investors, Cat Bonds offer an asset class with low correlation and historically good risk adjusted returns.
Fund investments entail risk. The value of investments in funds can increase as well as decrease and investors can loose all or some of the investment. Historical return is not a guarantee of future returns.
From our blog
Cat bonds have in the past 20 years had a total return on par with the equity markets. The total cat bond sphere, as measured by the commonly used index Swiss Re Cat Bond Total Return, has historically returned 8.7% per annum on average in the past decade This gives a total return of 130.7% in ten years, slightly above the total return on the stock markets in the same period. The return is highly due to the uncorrelated nature of cat bonds, which have left them largely unaffected by a number of drawdowns, most notably the financial crisis in 2007-2009, affecting most traditional asset classes. Read more
Climate change is set to increase the frequency of extreme weather events. Yet, we may paradoxically see fewer hurricanes with large impacts, due to the effects of urbanization. For insurance this poses a great challenge, where cat bonds may be part of the solution. Follow our animation explaining the hurricane paradox. Read more
Britain's leaving the EU will have a large impact on financial markets. Even ILS and cat bonds will be affected. The asset class has, however, demonstrated its fundamentally uncorrelated nature during the turmoil on the equity markets after the referendum to the benefit of its investors when traditional portfolios have been negatively affected. Read more
The Swedish newsletter Hållbart Kapital (Sustainable Capital) has published a piece on Entropics and cat bonds from a sustainability perspective. In the interview, I discuss the benefits to society from cat bonds, how we approach ESG issues and why the African Union fancies cat bonds. Read below for a full translation of the article. Read more
Today, I write in an op-ed published at the Swedish financial news site Realtid, that many investors lack the responsible approach to alternative investments as they have to equity. If managers are to change, investors must make demands. Read more