In recent months, if you’re interested in insurance-linked securities (ILS) or active in the ILS marketplace, you could not have missed the widely discussed issues of spread widening seen in catastrophe bonds, or the hardening of reinsurance pricing and how that spills over to ILS rates and returns.
Cat bond spreads began widening in earnest in early April, with a supply-demand mismatch, as well as elevated investor risk aversion, driving the trend.
The effects of the spread widening may be felt for a while and with reinsurance rates for catastrophe exposures having hardened considerably at the mid-year renewals, it seems unlikely spreads or rates-on-line for catastrophe bond coverage will fall back to where they sat last year, any time soon.
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