The increasing need for capital to manage and mitigate natural hazard risk is creating strong opportunities for investors, according to Schroders Capital, who emphasises that by allocating to catastrophe risk through insurance-linked securities, broader securitisation, and other risk-transfer markets, investors can secure attractive returns by absorbing catastrophe risk when pricing reflects expected losses and required margin.
A new report from the firm has outlined that as insured losses from natural catastrophe events continue to rise and insurance capacity becomes more constrained, risk is being redistributed across households, lenders, capital markets, institutional investors and governments, which is ultimately creating a wave of new transmission channels and investment considerations.
“Economic exposure has increased: there are more assets and individuals in coastal regions and other exposed areas, and higher construction costs driven by labour and material inflation. As a result, the financial impact of individual events is simply greater today than it was some decades ago. Climate-induced hazard changes amplify that trend,” Schroders Capital explained.
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