Category: Investment Insu-Linked

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

A recent report from UBS Group’s global wealth management arm has highlighted catastrophe bonds as a growing sustainable investment opportunity, emphasising their role in climate adaptation and financial protection against extreme weather events.

While they do not directly prevent disasters, UBS sees them as a crucial tool for helping insurers manage climate risks and for providing swift financial relief to affected communities.

Analysts also highlight cat bonds’ appeal to investors, citing their strong risk-adjusted returns and low correlation with traditional asset classes.

“From an issuer’s perspective, cat bonds can serve as a climate adaptation strategy, allowing insurance companies to manage their exposure to physical climate risks to which they’re exposed though primary insurance activity. This not only enhances the resilience of the insurance market but also provides social protection for those individuals and communities covered by insurance,” UBS said.

Adding: “As the world faces an increasing number of natural catastrophes, cat bonds are becoming increasingly relevant as a means of providing insurance against extreme weather events.”

Beyond their sustainability benefits, catasrophe bonds are also gaining traction among institutional investors due to their attractive financial characteristics. UBS points out that these instruments typically exhibit low correlation with other traditional asset classes, making them an effective hedge against market volatility.

UBS also highlights that investors can benefit from attractive risk-adjusted returns from cat bonds, especially within a low-interest rate environment.

Despite their benefits, UBS also highlights certain limitations that sustainability-focused investors should consider when it comes to cat bonds.

One key issue is the potential misalignment between parametric bond payout triggers and actual damage on the ground. While parametric bonds offer quick payouts based on pre-defined thresholds, such as wind speed or earthquake magnitude, these thresholds do not always align with the financial losses suffered by affected communities.

Furthermore, indemnity bonds, which base payouts on actual losses, offer a more precise alternative but often take longer to distribute funds, potentially delaying recovery efforts.

With extreme weather events becoming more frequent and costly, UBS sees cat bonds as an increasingly relevant investment that aligns financial returns with climate resilience.

The catastrophe bond and insurance-linked securities (ILS) market continues to expand at a rapid pace. Following a record year in 2024, issuance in the first quarter of 2025 managed to reach a huge $7.1 billion, which drove the size of the outstanding market to a new all-time-high of $52.2 billion.

Cat bonds offer sustainable investment potential amid rising climate risks: UBS was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

Italian and global insurance giant Assicurazioni Generali S.p.A. has now successfully secured a renewal for its green catastrophe bond, with the new EUR 200 million Lion Re DAC transaction finalised at its target size and with pricing of the two tranches of notes at either end of their initial ranges, Artemis can report.

Generali returned to the catastrophe bond market at the beginning of May, with an initial target to secure EUR 200 million of multi-year and fully collateralized reinsurance to protect it against losses from windstorms affecting Europe and earthquakes affecting Italy.

The insurer sponsored its first what it termed green catastrophe bond, back in 2021.

That €200 million Lion III Re DAC transaction provided reinsurance against certain losses from European windstorms and Italian earthquakes across a multi-year term, but matures this June.

Hence this new Lion Re DAC 2025-1 cat bond looks like a renewal of the previous deal.

Generali launched its own framework for Green insurance-linked securities (ILS) back in 2020, and in 2024 the green ILS framework was updated to incorporate new features and expand its scope, resulting in a Green, Social and Sustainability Insurance-linked Securities Framework.

Under this framework, Generali can free up capital thanks to the cat bond which can be put to work in sustainable investment.

Now, with the Lion Re DAC 2025-1 cat bond priced, Generali has secured its targeted EUR 200 million renewal and the deal will move towards settlement later this month.

Now, Lion Re DAC will issue two tranches of Series 2025-1 notes that will provide Generali with a four year source of collateralized reinsurance protection, on an indemnity trigger and per-occurrence basis, against losses from windstorms across Europe and earthquakes in Italy.

A EUR 125 million Class A tranche of Series 2025-1 notes will provide Generali with both European windstorm and Italy quake protection. They come with an initial expected loss of 3% and were first offered to cat bond investors with price guidance in a range from a spread of 5.5% to 6.25%.

We now understand the Class A notes have been priced at the low-end of that guidance, for a risk interest spread of 5.5% to be paid to investors.

A EUR 75 million Class B tranche of notes will provide Generali with only Italy earthquake protection. They come with an initial expected loss of 2.33% and were first offered to cat bond investors with price guidance in a range from a spread of 5.25% to 6%.

We’re told the risk interest spread for the Class B notes has now been finalised at 6%, so at the upper-end of the initial guidance range.

As a result, Generali has secured its targeted collateralized reinsurance coverage from the catastrophe bond market with pricing within guidance, albeit at opposite ends of the respective initial ranges on offer.

As a comparison, the soon to mature Lion III Re cat bond featured a single tranche of notes exposed to both of the perils and came with an initial expected loss of 2.99% and priced to pay investors a risk interest spread of 3.5%.

Under the terms of Generali’s Green, Social and Sustainability Insurance-linked Securities Framework, this new Lion Re DAC catastrophe bond will free up an amount of its own capital, equal to the cat bonds limit. This can then be allocated to eligible projects by the company, while the collateral will be invested in EBRD notes. The insurer will also report on the allocation of the freed up capital and the project benefits derived from that, we understand.

It’s great to see Generali continuing to push the boundaries of ESG within the catastrophe bond market, by following its framework and seeking to deliver broader sustainable benefits, while also deriving its own benefits from the capital markets backed reinsurance the cat bond will provide.

You can read all about this new Lion Re DAC catastrophe bond and every other cat bond ever issued in the Artemis Deal Directory.

Generali secures EUR200m Lion Re DAC “green cat bond” renewal was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

Commenting on the successful placement of its new €200 million Lion Re DAC Series 2025-1) catastrophe bond, sponsor Generali’s Group CFO Cristiano Borean hailed the “unique and distinctive ESG features” of the cat bond, also citing “a further enhancement in terms of structural efficiency, optimisation and flexibility,” thanks to the new shelf programme under Lion Re.

As we’ve been reporting, Generali returned to the catastrophe bond market at the beginning of May, with an initial target to secure €200 million of multi-year and fully collateralized reinsurance to protect it against losses from windstorms affecting Europe and earthquakes affecting Italy.

We then reported that Generali successfully secured this renewal of its green catastrophe bond, with the Lion Re DAC transaction finalised at its target size and with pricing of the two tranches of notes at either end of their initial ranges.

As a result of which, Generali benefits from the full €200 million of multi-year collateralized reinsurance protection from the capital markets through Lion Re DAC.

Now, the company has announced its satisfaction in securing its latest catastrophe bond backed reinsurance protection.

Cristiano Borean, Generali Group CFO, commented, “Generali’s well-established presence in the ILS capital market is once again confirmed by this fourth successful catastrophe bond issuance, with a further enhancement in terms of structural efficiency, optimisation and flexibility, thanks to the ILS shelf programme.

“As a responsible insurer and investor, this issuance with its unique and distinctive ESG features, once again demonstrates our sustainability-rooted excellence by integrating ESG principles into alternative risk transfer solutions, while also effectively embedding ILS instruments into our capital management strategy.”

Marco Sesana, Generali Group General Manager, added, “Our new catastrophe bond reaffirms Generali’s strong relationship with ILS investors, which started in 2014 with the issuance of our first catastrophe bond.

“ILS capital is completely integrated and complementary to our traditional reinsurance strategy. This first transaction, under the newly shelf programme, reflects the continued trust in the quality of our portfolio and our disciplined approach to risk management. Furthermore, it is fully aligned to our Lifetime Partner 2027 strategy, advancing our sustainability value proposition, thanks to the ESG structure at the core of this issuance.”

Lion Re DAC provides a platform for multi-arrangement issuance of catastrophe bonds under the special purpose vehicle, which the company said will provide “further flexibility with regard to the sponsorship of multiple catastrophe bond issuances over time within a specific framework.”

Well-known insurance-linked securities (ILS) specialist arrangers and bankers Aon Securities and GC Securities acted as Joint Structuring Agents and Joint Bookrunners for the Lion Re DAC transaction.

As we’d said before in reporting on this recently settled cat bond issuance, under the terms of Generali’s Green, Social and Sustainability Insurance-linked Securities Framework, this new Lion Re DAC catastrophe bond will free up an amount of its own capital, equal to the cat bonds limit. This can then be allocated to eligible projects by the company, while the collateral will be invested in EBRD AAA rated green notes. The insurer will also report on the allocation of the freed up capital and the project benefits derived from that, we understand.

You can read all about this new Lion Re DAC catastrophe bond and every other cat bond ever issued in the Artemis Deal Directory.

Generali CFO hails “unique and distinctive ESG features” of new Lion Re cat bond was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

As investors grapple with the challenges of market concentration, rate uncertainty, and sustainability underperformance, insurance-linked securities (ILS) are emerging as a compelling solution for ESG-focused portfolios, according to Tiziana Maida, Head of Research at investment management, wealth planning and consulting specialist IPS Capital LLP.

In a recent commentary, Maida outlined how IPS Capital incorporated ILS into its ESG portfolios in the fourth quarter of 2024, highlighting the asset class’s diversification benefits and alignment with environmental and social goals.

“With this scenario in mind, we have focused on alternative investments that are not exposed to the risk of higher rates for longer, such as insurance-linked securities which we have added to ESG portfolio in Q4 last year,” she said.

“By their nature, ILS align well with our commitment to environmental, social, and governance principles as they play a crucial role in addressing climate change-related events,” Maida explained.

Maida also pointed out that beyond financial returns, ILS contribute to real-world resilience.

“ILS help insurers and reinsurers manage these growing risks. By investing in these products, we can then support the insurance industry’s ability to provide coverage for climate-related events, enhancing social resilience and providing financial support for rebuilding efforts after natural disasters,” she added.

The short duration of ILS, which is typically up to one year, makes them particularly adaptable to climate risk, as they can reprice annually to reflect changing environmental conditions.

As Maida goes on to note, this provides investors with updated compensation for emerging climate exposures.

In addition, Maida also highlighted the asset class’s growing recognition within the sustainable finance framework.

“A significant portion of ILS assets are now classified as Article 8 under the European Union Sustainable Finance Disclosure Regulation (SFDR), highlighting their sustainability focus,” she explained.

Adding: “Moreover, ILS are increasingly being used with a development angle, such as bonds issued to protect against earthquake risk in developing countries. This approach allows investors to support disaster risk financing in developing nations, aligning with sustainable development goals.”

She continued: “The financial benefits of these products also offer a compelling narrative. They often offer favorable terms compared to corporate bonds of similar credit quality. ILS are trading on an average spread of 8.8% over the risk free and they display a current average expected credit loss of just over 2% which compares favorably to the 3.2% credit loss for global high yield bonds as reported by the credit rating agency Moody’s.”

Amid growing market volatility, climate risks, and pressure on ESG strategies to deliver, Maida views ILS as a unique asset class that combines strong return potential with risk resilience and measurable impact.

“By incorporating ILS into our investment strategy, we are not only potentially enhancing returns and diversification but also contributing to a more resilient and sustainable global economy,” Maida concludes.

Furthermore, IPS Capital’s Chief Investment Officer Chris Brown recently noted that, “Our insurance linked securities are unaffected by tariff noise (which is of course one of their core attractions) and are also up for the month and year so far.”

ILS gain ground as ESG diversification tool: IPS Capital’s Maida was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

While fixed income is the world’s largest asset class, it is not commonly recognised for investments making social or environmental impact. But a recent report explains why investors should look more closely at fixed income assets and catastrophe bonds are highlighted as one impact investing opportunity within the segment.

The report comes from a research collaboration between Builders Vision, an investor and philanthropist team that looks to accelerate impact solutions and counts the Walton family office as a backer, Tideline, a consultancy that works to catalyse the development of the impact investing market, and BlueMark, a verification and intelligence provider to the impact and sustainable investing market.

Catastrophe bonds and other insurance-linked securities (ILS) have long been cited for their ability to generate real impact in society, through their ability to transfer natural disaster and weather risk to the capital markets, while payouts from the instruments go towards insurance claims, paying for reconstruction and redevelopment after catastrophe strikes.

While the ILS community and many across insurance and reinsurance markets recognise the societal value of risk transfer and the protection it affords, increasingly we are seeing catastrophe bonds in particular highlighted as an opportunity for impact investors.

Catastrophe bonds and other ILS investments certainly meet the topic of a fixed income instrument that can deliver meaningful and positive societal impact, that is often hidden from sight of many allocators.

The authors of the report argue that “impact fixed income is a rapidly growing asset class with predictable and comparable financial returns to traditional fixed income investments.”

One of the key features of the fixed income asset class that is particularly relevant for the cat bond and ILS asset class is “responsiveness”, which the report authors explain as, “capacity to rapidly mobilize capital to address our most urgent needs, such as responding to natural disasters and pandemics.”

In highlighting the impact potential of catastrophe bonds, the report authors refer to the case of the Tohoku, Japan earthquake in 201.

Some readers will recall that the Tohoku earthquake resulted in the triggering and total loss to the $300 million Muteki Ltd. catastrophe bond transaction.

The Muteki Ltd. cat bond was issued in 2008 by global reinsurance company Munich Re on behalf of Japanese cooperative Zenkyoren, one of the longest-standing sponsors of catastrophe bonds.

The Muteki catastrophe bond utilised a parametric index trigger and so was able to payout relatively quickly to the benefit of Zenkyoren. The earthquake occurred on March 11th 2011 and we reported on the confirmation that the Muteki deal had been triggered and would face a total loss on May 7th that year.

The report, Scaling Solutions: The Fixed Income Opportunity Hiding in Plain Sight (available here) explains that the example of the Muteki cat bond shows fixed income instruments having impact in meeting urgent needs in real time.

It states, “Following the 2011 Tōhuku earthquake and tsunami—the fourth most powerful earthquake in recorded history — catastrophe bonds were instrumental to raising capital to support disaster relief. Issued by Munich Re, JA Kyosai’s catastrophe bond was able to raise USD $300 million for timely disaster payouts.”

Meeting urgent needs in real time is an “underappreciated” and unique impact function of fixed income, as evidenced by the cat bond structure, “which are distinct from those of other asset classes, yet critically important and complementary to an impact investing toolkit,” the report explains.

For fixed income in general, the report points to its suitability for such use-cases, given the inherent liquidity, the fact it is a well-established asset class, has a long history of investor confidence and established market infrastructure.

Of course, we are just cherry-picking one small example from the report as it references cat bonds, but overall we feel it is well-deserving of a read as it drives home many of the things we’ve written about for years, regarding the use of ILS as impactful disaster risk financing structures.

In the report’s conclusion the following paragraphs resonate with the remit of the cat bond and ILS market, “Fixed income has long been the bedrock of institutional allocators’ portfolios—valued for its financial capabilities of generating stable and predictable returns, adding liquidity, and providing essential diversification benefits. However, its potential as a powerful lever of social and environmental impact has been relatively untapped and underexplored. It is time to shift the narrative on fixed income. Fixed income is more than just an instrument for capital preservation. Rather, it has enormous and growing potential as a vehicle for achieving targeted and authentic impact outcomes at scale.

“With global challenges demanding trillions in capital, expanding the impact investing toolkit to include a broader range of instruments—particularly those capable of mobilizing large volumes of capital—is essential. To this end, investors must be intrepid in exploring how fixed income, the world’s largest asset class, can be intentionally activated for impact. And institutional asset allocators, as by far the largest investors in the fixed income markets, are uniquely positioned to lead the charge.”

Again, the full report, Scaling Solutions: The Fixed Income Opportunity Hiding in Plain Sight, is available to download here.

Cat bonds highlighted as an untapped fixed income impact and return opportunity was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.