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Hurricane Map

Cat Bonds

Catastrophe bonds, or "cat bonds," are standardised financial instruments that function as reinsurance contracts. These bonds emerged in the 1990s primarily to provide coverage against natural disasters, such as hurricanes and earthquakes, especially in developed markets like the US, Japan, and Europe.

With a market size now exceeding $40 billion, encompassing around 300 individual cat bonds, this sector has experienced significant growth. Cat bonds are predominantly issued by insurance companies as a strategy to manage regulatory capital requirements. Insurers are mandated by regulation to maintain substantial capital to mitigate concentration risks, which can result in significant regulatory capital costs. Cat bonds offer an efficient, multi-year reinsurance solution, allowing insurers to effectively manage these risks and reduce the burden of regulatory capital requirements.

 

For investors, they present a unique opportunity for diversification, being largely uncorrelated with traditional financial market risks such as corporate credit, equity market, interest rates, and foreign exchange fluctuations. Investors in cat bonds have witnessed a historic performance of over 7% per annum, with current yields exceeding 13% in USD (as of Q1 2024). These bonds are evaluated using well-established scientific methodologies, providing precise and reliable assessments of economic risks at both the instrument and portfolio levels.

10%+

Cat Bond
Market Yield (%)

43

Cat Bond
Market Size ($bn)

<0.9%

Historic Annual
Loss Rate

<0.2

Correlation to
MSCI World

Why should one invest into cat bonds?

Diversification and return

There are several reasons why someone might consider investing in catastrophe bonds. One reason is the potential for attractive returns. Cat bonds can offer higher yields than other types of fixed-income investments, with yields exceeding 10% in USD. Over the past twenty years, cat bonds have returned an impressive 7% p.a. performance. Another reason to invest in cat bonds is the potential for diversification.

 

Because cat bonds are typically not correlated with the stock market or other traditional asset classes, they can provide a way to diversify a portfolio and reduce overall risk. Additionally, investing in cat bonds can be a way to support communities and homeowners in coping with the effects of large natural catastrophes.

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What is the history of the cat bond market?

Established for decades

The cat bond market is a well established financial market that has grown rapidly in recent years. The first cat bond was issued in the 1990s, but the market really took off in the early 2000s. This was because insurance companies were looking for ways to transfer the risk of large-scale disasters to the capital markets, and cat bonds provided a way to do this.

 

The market has continued to grow and evolve over time, with new types of cat bonds being developed to cover a wider range of risks. Today, the cat bond market is a significant part of the global insurance industry, with billions of dollars worth of bonds outstanding.

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How to invest?

Investing via a fund

Investors who would like to gain access to the cat bond market can do so via investing into commingled funds. Most cat bond funds offer varying levels of liquidity, contingent on the specifics of each individual investment strategy, making them a swift and cost-effective way to allocate capital.​

Our solution, offered in collaboration with our trusted partners, offers institutional investors in certain geographies the possibility to invest into a UCITS cat bond fund with weekly liquidity and market-like risk return profile.

Contact us to learn about the Icosa cat bond UCITS strategy...

Our commitment to investors aims to deliver a comprehensive client experience. Our client-centric philosophy ensures that we are readily available to address any queries and provide ongoing support throughout the investment journey, regardless of the size of the investment. As a fund investor with us, you enjoy direct access to our team of investment professionals. These are the very experts who are hands-on with portfolio management, bringing you the assurance of expert insights and reliable management of your investments

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What are the options for larger investors?

Managed Accounts

At Icosa Investments, we appreciate the distinctiveness that each client brings to the table, understanding that their investment objectives and risk appetites are unique. Hence, we pride ourselves on delivering personalised investment solutions, each meticulously tailored to satisfy our client's individual needs. In collaboration with our established partner organisations, we offer a suite of services that spans market insights, investment advice, and the structuring and management of separate managed accounts or funds of one. These services are extended to a diverse portfolio of sophisticated investors around the world.

The utilisation of dedicated investor vehicles empowers our clients to actively contribute to the formulation of their investment strategy. They can shape the liquidity profile and set the risk boundaries. This interactive approach facilitates the crafting of an investment product that is specifically tuned to fulfil the client's requirements, serving as a precise tool for their financial needs and desires.

Contact us to discuss our offering...

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