In the first half of 2023 the ILS market and its cat bond sub-segment delivered very pleasing returns. The article explains the reasons that lie behind these dynamics and what the development means for investors interested in the asset class today, mid-year 2023.

This article, written on invitation by the German trade journal 'Die VersicherungsPraxis', was published in the 12/2022-01/2023 issue of the journal. Addressing institutional insurance buyers rather than the ILS investor community, Solidum’s managing partner Dr. Karsten Bromann discusses the potential of cat bond instruments for the risk transfer from industrial insurance buyers to the capital markets. The paper covers current challenges and gives an overview of successful historic transactions.

The year 2022 was challenging for investors in many asset classes, with inflation reaching new hights and return expectations rising globally in most markets. Cat bonds and private ILS were not immune to this market shift. However, they managed to perform remarkably well during these demanding times. The impact of Hurricane Ian in Florida in September further strengthened the momentum towards improved market conditions in the ILS asset class. At the beginning of 2023, the ILS market is thus as attractive as it has not been seen in a decade.

Already in the first half of 2022 the attractiveness of the cat bond market improved, with yields rising to levels not seen since the end of the credit crisis. Hurricane Ian's impact on the reinsurance industry gave a boost to this trend. The briefing provides additional background on the current market dynamics.

Major hurricane Ian hit Florida as an upper-level category 4 storm, causing significant humanitarian and economic loss. The destruction caused by the storm will noticeably affect the reinsurance and ILS markets. The present loss report discusses the storm and provides, from a perspective shortly after the event, a preliminary analysis of its impact on the reinsurance industry and the portfolios of the Solidum funds.

Capital markets generally faced a difficult time during the first half of 2022. Insurance Linked Securities performed reasonably well in this challenging environment and proved their merits as a diversifying asset class. However, an expectation by investors of higher return for the risk affected cat bond yields and pricing as well.

The year 2021 challenged the ILS industry on several occasions. Not only hurricane Ida, but as well a selection of other noteworthy events hit the reinsurance market and caused insured losses well in excess of 100 Bn USD. The Solidum Funds sailed safely through these troubled waters and were able to generate strong results for the investors.

The attached article (German only) reviews the past year and presents the ILS market at the turn of 2022.

In December 2021 the online forum der fonds (www.derfonds.com) conducted an interview with Solidum’s Chief Risk Officer Dr. Karsten Bromann for an article about the benefits of cat bond investments in a general investment portfolio. The Solidum Cat Bond Fund was presented as well, being able again in 2021 to outperform the group of peers selected for the story.

Storm history

Inflationsszenarien und die Sorge vor steigenden Zinsen sowie die immer drängendere Frage, wie weit die klassischen Anlagemärkte heute ausgereizt sind, führen zu zunehmender Nervosität auf den Kapitalmärkten. In diesem Umfeld bleibt das Interesse an Insurance Linked Securities als diversifizierendes Element in einem Anlageportfolio in der ersten Hälfte des Jahres 2021 ungebrochen, was sich in einem hohen Neuemissions-Volumen und einem aktiven Sekundärmarkthandel zeigt.