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K2 sees cat bonds as stand-out for growth. Price discipline drives spreads

Increased investor price discipline across insurance-linked securities (ILS) and reinsurance linked investments is helping to drive returns higher, but catastrophe bonds are the stand-out as the ILS market segment likely to grow in 2022, according to K2 Advisors.

The investment research team of K2 Advisors, the hedge fund focused asset manager unit of investment firm Franklin Templeton, has been recommending clients allocate to certain areas of the private ILS market and catastrophe bonds for some quarters now, suggesting improving fundamentals.

The recommendations remain, at “strongly overweight”, for both catastrophe bonds and private ILS, but K2 Advisors is underweight industry-loss warranties, feeling that segment less attractive right now and neutral on investments into retrocessional reinsurance.


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