Home›Insurance›Reinsurance›LGT ILS Partners urges combining cat bonds with privat…

LGT ILS Partners urges combining cat bonds with private reinsurance

LGT ILS Partners’ Christian Bruns said average risk in newly issued catastrophe bonds and market concentration have risen as attachment points were pushed lower.

Reported · Written up by our desk · Reinsurance

Catastrophe bonds and private reinsurance are gaining momentum, but LGT ILS Partners’ Christian Bruns told Artemis that investors should not treat them as competing asset classes, saying their strengths can be combined to build more diversified catastrophe risk portfolios.

Bruns said the recent capital flow toward catastrophe bonds has been supported by a narrative that they are less risky and more transparent than private reinsurance, noting that cat bonds are publicly marketed, use more standardized documentation, and provide price discovery through secondary market quotations that can be easier to present to investment committees.

He cautioned, however, that transparency is not the same as lower risk, and said the average risk level of newly issued catastrophe bonds and concentration risk in the market have increased in recent years as structuring teams pushed attachment points lower.

Bruns also highlighted that the lack of recent large losses in core exposures, particularly US hurricane, should not be read as evidence of lower risk, and said private reinsurance can add value by supporting diversification across issuers, geographies, and structures beyond peak US hurricane and earthquake exposures.

More like this

Sources