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How do cat bonds work?

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Entropics O
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Team specialized in insurance risks

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Standardised reporting could popularise cat bonds further

Improved standardisation regarding risk reporting can consolidate cat bonds as an asset class. Even waiting for a comprehensive standard, the industry could take several steps to increase the transparency of risk assessment.
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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 Rate Since start One week One year Report
SEF Entropics Cat Bond (Class A) 103.00 +3.00% -0.02% +6.74% Latest report

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Risk Information:
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.

standardisation

Improved standardisation regarding risk reporting can consolidate cat bonds as an asset class. Even waiting for a comprehensive standard, the industry could take several steps to increase the transparency of risk assessment. Read more

Robert Lindblom
Robert Lindblom
CEO
baseball

Several factors - the diversification challenge in a low interest environment, expected new emissions and increasing supply of new perils on the market - indicate that cat bonds presently are an interesting option. Read more

Robert Lindblom
Robert Lindblom
CEO
Cat bonds har låg ränterisk

For fixed income instruments, such as cat bonds, the sensitivity to interest rate variation is very important to investors. Any investment in fixed-income instruments, such as traditional government or corporate bonds, or cat bonds, carries an interest rate risk. Cat bonds are, however, structured in a manner that minimises this risk. Read more

Robert Lindblom
Robert Lindblom
CEO
returns cat bonds - equity - corporate bonds

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

Robert Lindblom
Robert Lindblom
CEO
hu_animation

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

Henrik Sjöholm
Henrik Sjöholm
Director of Communications and Responsible Investment
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