Despite the fact premia has reduced in the catastrophe bond market, private bank and asset manager VP Bank AG maintains a neutral weighting on insurance-linked securities noting that the Atlantic hurricane season is currently running its course loss free, although also highlighting the expensive cost of currency hedging.
VP Bank has remained positive on the inclusion of catastrophe bonds and ILS within investor portfolios for their diversification benefits, seeing the value persisting even as yields have declined.
Yields to maturity of new catastrophe bond and ILS issuance have declined over the last three years with the softening of reinsurance pricing, which you can analyse in our chart displaying Plenum Investment’s cat bond market yield data, but for VP Bank the return potential of the asset class continues to compare favourably with other far more correlated and less diversifying investment categories.
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