Sweden’s first cat bond fund – Entropics, is made available to Skandia savers
The first cat bond fund managed by a Swedish manager – SEF Entropics Cat Bond Fund – is now made available to policy holders and clients to Skandia holding deposit linked insurance or deposits. The fund invests in a globally diversified portfolio of insurance linked securities, so called cat bonds, mostly related to extreme natural events.
Skandia is on one of Sweden’s largest bank and insurance groups and is, since 2013/2014, a mutual corporation, governed by its policy holders.
– It is very gratifying that Skandia opens Entropics to its savers. Entropics is a Nordic pioneer and globally leader in responsible cat bond investments. The fund thus suits well in the offering of a company that emphasizes responsibility and sustainability in its fund offer offering, says Robert Lindblom, CEO of Entropics.
Entropics was founded in 2013 as the first Swedish asset manager specialized in cat bonds and insurance linked securities. SEF Entropics Cat Bond Fund is among the first cat bond UCITS funds globally. Its managers are Ph.D. Gunnar Roos and Mr. Robert Lindblom together with a six-member team based in Stockholm.
– Entropics invests in a global portfolio of several cat bonds linked to different insurance events in all parts of the world, which entails good risk diversification. A stock market crash does not trigger a natural event and the fund thus has good expected returns, independent of the returns in the equity and government bond markets. Investors and policy holders can decrease their risk by complementing their equity, hedge and bond funds, says Mr. Lindblom.
The fund saw a drawdown in 2015, as the extreme hurricane Patricia in Mexico triggered one of the bonds in the portfolio but has, despite this, had a positive return of 0.14% since inception. In the same period, global stock markets returned -3.06% (MSCI World Index) and the global hedge fund index (HFRXGL) -6.35%. This demonstrates the diversification of the portfolio and the low correlation with traditional equity and bond markets.
More specifically, cat bonds are securities that provide collateral for an insurance obligation as economic protection against, e.g., extreme hurricane damages. Often and insurance or re-insurance company seeking protection against large but rare events initiate the bond. The conditions for the bond to release funds in case of an insurance event are regulated in an insurance agreement and can, for example, be the magnitude of an earthquake, the central pressure of a hurricane or actual indemnities. Cat bonds were invented after hurricane Andrew in 1992, when 11 insurance companies in Florida filed for bankruptcy due to the indemnities. Cat bonds can transfer the risk from the insurance market to the many times larger capital market. The holder of a bond receives, for providing the collateral, risk premiums and interest returns on the collateral, usually invested in government bonds. Cat bonds enable insurance protection for residents and companies in exposed areas and offer investors an asset class virtually lacking correlation to traditional asset classes.