CAT Bonds are being issued to guarantee the sponsor a protection from insured natural catastrophes. The investor takes this risk and obtains a similar risk/return profile as a reinsurer.
Fund Facts & Figures
Next CAT Bonds
January 23rd, 2020
Insurance Linked Securities (ILS), also called CAT bonds, belong to a still young and relatively unknown asset class. The name refers to securitized insurance and reinsurance risks.
The sponsors of such bonds – usually insurance or reinsurance companies – try to compensate the financial damages due natural catastrophes. Through special purpose vehicles they certify the risks. Besides the classical sponsors, industrial companies which were particularly affected by natural catastrophes have also acted as sponsors in the past (e.g. Japan railway). CAT Bonds cover mainly the risks deriving from earthquakes, hurricanes or typhoons. The USA is the largest CAT Bond market.
An investor in this asset class takes the role of a reinsurer: if no damage occurs the investor receives a premium; in case of a natural event the damages will be paid with parts or all of the investment. CAT Bonds are almost completely unaffected by developments on the stock market and develop independently from traditional asset classes.
The Solidum Falcon Insurance Linked Strategy Fund invests in approximately 90 – 120 different CAT bonds covering different damaging events. The portfolio can be differentiated by region, natural event and damage amount. The fund was launched in 2010 and is being managed by an experienced team in Zurich. Liquidity is weekly.
The most eventful natural catastrophes since the fund was launched were the Tohoku earthquake in 2011 (Fukushima Coast in Japan), Hurricane Sandy in 2013 (US) and Hurricanes Harvey and Irma in 2017 (US).
2017, with Hurricanes Harvey and Irma in the US, was a bad year for CAT bonds. The Fund (ILS) was unable to fully compensate for the losses incurred and lost -2.26% over the calendar year 2017, and as much as -16% in the short term.
You can read the performance development of the individual years HERE.
However, past performance is not an indicator of future performance.
As the asset class is independent of traditional investments such as equities and bonds, CAT bonds contribute to the diversification of the portfolio and can be seen as a satellite investment within the framework of the core satellite strategy.
The securities are nevertheless subject to risks. With CAT Bonds, you participate in insurance premiums and must expect a partial or total loss with CAT Bonds if damage occurs. The investment takes place in a very narrow market segment. Under certain market conditions, it may be difficult to find a buyer for these securities at short notice. Contractual partners (sponsors) can also become insolvent and can no longer or only partially settle outstanding claims of the fund. This results in a reinvestment and price risk.
This information cannot replace a consultation. The sole binding basis for the acquisition is the key investor information as well as the sales prospectus and reports.
Stefan Mueller holds a masters degree in finance and worked on the design and implementation of financial solutions for insurance exposures. Until 2003 he was an insurance event-linked securities specialist at Zurich Re/Converium. He is the founding partner of ISP Alternative Risk Advisors AG, which he rebranded to Solidum Partners after a management buyout in 2006.
Karsten Bromann holds a Ph.D. in physics from the Swiss Federal Institute of Technology (EPFL), Lausanne and is a qualified actuary DAV. Before joining Solidum Partners in 2005 as Chief Risk Officer, he worked for Zurich Corporate Solutions as head of quantitative analysis. He has earned several awards for his outstanding scientific work.
About Solidum Partners (Fundmanager starting August 1st 2019)
Solidum Partners AG was founded in 2004 and is an independent fund manager and asset manager specialising in insurance-linked securities (ILS).
As manager with the longest track record of Insurance-Linked Securities (ILS) in Continental Europe, the company is highly regarded as a market expert throughout the industry.
The team of Solidum Partners consists of proven experts with an average experience of more than 20 years in evaluating and modeling reinsurance risks, as well as managing insurance-linked portfolios.
The swiss company is based at the international reinsurance and ILS location in Zurich and offers advisory and portfolio management services for institutional investors.
Solidum Partners is regulated by the Swiss Financial Market Supervisory Authority (FINMA) and authorised as an asset manager of collective investment schemes.