Investors prepare for the worst with catastrophe-linked bonds citywire.co.uk - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from citywire.co.uk Daily Mail and Mail on Sunday newspapers.
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TABLE 1: Source: Morningstar. Year to date flows in USD (Jan - Apr 2021]
Cat bonds are a form of insurance-linked bonds used by insurance and reinsurance companies to spread the risks associated with insuring the consequences of catastrophic events, such as natural disasters.
The World Economic Forum (WEF) has identified a number of key global challenges and within the top five risks in terms of likelihood are extreme weather, climate action failure, natural disasters, biodiversity loss and human-made environmental disasters. All areas which touch upon cat bonds’ remit.
With money flowing into ESG strategies, money has also gone into cat bonds with an environmental focus, as well as from yield hunters ploughing money into these alternative bonds. These bonds are event linked and have the advantage of paying a premium to the investors for the risk they take on of potential loss of their principal amount invested.