The story, a major item in the financial era, the sale of Catastrophe Bond, has set records for insurers as climate risk-stakeholders, but the key details are unhappy, like the saturation and risk of these catastrophe bands. The big selling point seems to be “really juicy yields” and sub-diversification into other bonds. However, subprime debt and CDOs look like transactions before the financial crisis.
What’s particularly frustrating is that this article does not clarify the following issues of submay:
Unlike traditional corporate, sovereignty and real estate liabilities, there is no good way to assess risk. That is, investors (although probably a few people with staff with reinforced chops) don’t have a clue as they’re getting prisoners. Reinsurance could lead you to blow away normal insurance company catastrophe coverage and gaining a reinsurance policy, such as when a particular event has too short time frames. This is an event like Berkshire Hathaway’s Dream Dream Reinsurance Unit, who is not yet convinced how a particular event will be categorized, is rushing to buy an extra “cat cover” that Berkshire can recharge through the nose. Generally, Berkshire aims to write Polly only in “hard markets” when pricing is very advantageous, otherwise sits on the sidelines. As far as I know, there is no other discipline to continue hiring staff. Do nothing all day long.
Regular outbreaks of large hurricanes, wildfires, and earthquake events mean that there is a higher risk of total or large-scale maintenance than many other bond instruments.
Credit spreads were at a lower level in the second half of 2024, as they were even tougher than the famous “liquidity wall” that would take on stage in the crisis, similar to those paid by bond investors to take on risk. They’ve been spreading a bit since March 2025, but what I can say (without access to the Bloomberg Terminal) is still extraordinarily thin. This mistakenly believes investors are overly tempted to put India at high risk and can prefer exits in good form if necessary.
In addition to estimating that reinsurers and Henco also write down the risks to cover certain exposures on bonds, my impression is that they regularly (always?) only cover certain restrictions.
And a question to the actual expert: my colleague jokes that insurance contracts are simply the right to rebellion for payments. These insurers are entities and all of Hell is staffed to dig the heels. How much postal plated ale bond infsters are there to do that?
Twitter confirms that I am not alone in skepticism.
Hedge funds buying catastrophe bonds
ft. @macyagilliam pic.twitter.com/2ynbhfeq0g
– MorningBrew☕️ (@MorningBrew) January 22, 2024
Now, to the high point of what the pink paper says about bonds:
The issuance of equipment to transfer some of the risks of events as wildfires, hurricanes and earthquakes to bondholders has appeared in $18.1 billion so far this year. This compares to previous records of $17.7 billion for 2024, according to specialist data provider Artemis.BM.
Applicants became more common, and insurance companies had to pay more than $100 million in natural catastrophe losses each year.
Industry-wide Swiss RE index of total revenue from catastrophe bonds of 14% over the past year and 50% over the past five years.
In 2023, Fitch described a sudden search for a new champ of global reinsurers that will be pulled back from covering natural catastrophes.
Fitch Rating – Chicago/Frankfurt/London 24 August 2023: Global reinsurers are reducing the coverage offered to the risk of medium-sized natural catastrophes due to the losses of several years of major catastrophes and pressure from investors after improvements in profitability in other parts of the market, Fitch Rating says.
The sub-companies had already retreated from the real estate casual market in 2022, but even the strongest reinsurers have pulled back primarily by tightening hair and conditions and limiting the total cover and low-rise of natural catastrophe protection. This makes primary insurance companies far less likely to come from secondary hazard events. However, reinsurers provide ample coverage for the most serious events. The reinsurance market appears to have returned to a soft market state that provides capital protection to sedans rather than income protection.
Natural catastrophe businesses have largely generated losses in recent years as prices have not been able to continue walking with losses over frequent, severe and unstable weather caused by climate change. This has reduced the appetite of natural disasters into natural disasters, particularly as other business lines benefit from higher price increases than inflation in bills. Conditions for tighter tours and natural catastrophe coverage are structural obstacle cries profit reinsurers
So it is said that risk pricing has improved as reinsurers set backwards… but why would they generally represent unskilled institutional investors if they don’t find it priced enough to justify stepping up to their previous levels? The demand for risk protection, which increases dramatically as the underlying risk increases, does not guarantee profits.
Finally, the Financial Times provides a bit of information about what the bond is.
Catastrophe is a form of reinsurance, insurers and businesses give investors regular payments to assume risks from events such as extreme weather. In the event of such a disaster, bondholders could lose money…
The first exchange trading fund for catastrophic bonds launched on the New York Stock Exchange in April, in signs of an expansion appeal for instruments…
The steadily increasing costs of traditional reinsurance – partly due to extreme weather losses and rising asset prices, pushing insurers into catastrophic bonds.
Artemis Editor-in-Chief Steve Evans is a new investor in the range sector, from large institutional investors to multilateral strategic hedge funds, donations and family offices.
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Sub Financial Times readers have filled out key gaps in the information:
Commons
There is too much reference to climate risk in the cat bonding discussion. These are bonds and are usually a relative shorts period of three years, so this slight change in climate risk to the masses is negligible. As insurers replicate their policies each year, pricing does not reflect the long-term impact of climate change. Rapid urbanization in areas where property prices are high and catastrophes are prone to ingested tax violations is a stronger factor in insurance pricing than climate change. However, if reinsurers begin issuing 30-year bonds related to standardized parametric catastrophes, it could cause today’s Secary market references on climate risks in insurance pricing could develop over the past decade of bonds.
roxelana1955
Curiosity makes me wonder why performances fell off the cliff from 2021 to 2022?
Benkman
Because traditional reinsurance rates were low, insurers purchased a lot to use the soft market. As the reinsurance market began to harden significantly in 2023 (sub-treaty sees a year-over-year rise of 30-50%), alternative risk transfer methods were more attractive.
Lukz
Hurricane Ian hit Florida and the US East Coast in September 2022. Losses over US$100 million guarantee a loss of 600 billion, much of which is covered by cat ties.
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1The other is commercial real estate development.
