Category: Investment Insu-Linked

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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
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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.

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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.

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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.

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Italian and global insurance giant Assicurazioni Generali S.p.A. is looking to renew its soon to mature green catastrophe bond with a new EUR 200 million Lion Re DAC transaction now in the market, that targets European windstorm and Italy earthquake reinsurance for the company, Artemis can report.

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.

The insurer sponsored its first green catastrophe bond issuance in 2021, the €200 million Lion III Re DAC transaction, securing reinsurance protection against certain losses from European windstorms and Italian earthquakes across a multi-year term.

That deal matures after this June and so now it appears Generali has returned to sponsor a renewal with this Lion Re DAC cat bond issuance, which now falls under the updated green, social and sustainable ILS framework.

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

In the case of the Lion III Re catastrophe bond, it freed up €28.1 million of capital for the insurer, under regulatory capital relief calculated on the basis of its Solvency Capital Requirement at the inception of the cat bond risk period. That freed up capital was allocated to a sustainable investment deemed to make a positive environmental impact.

So it’s good to learn that Generali has come back to renew its catastrophe bond coverage and to continue pushing the boundaries on the sustainable investment side of the insurance-linked securities (ILS) market with this new deal.

We’re told that Generali has established a new designated activity company in Ireland for its latest catastrophe bond issuance, Lion Re DAC.

Lion Re DAC is looking to issue two tranches of Series 2025-1 notes that will be sold to investors and the proceeds used to collateralize reinsurance agreements for sponsor Generali.

The notes are designed to provide Generali with a four year source of collateralized reinsurance protection against losses from windstorms across Europe and earthquakes in Italy, the same perils as the soon to mature Lion III Re deal.

The reinsurance protection will be on an indemnity trigger and per-occurrence basis for both of the tranches of notes, we understand.

Lion Re DAC is offering a EUR 125 million Class A tranche of Series 2025-1 notes that will provide Generali with both European windstorm and Italy quake protection, with windstorm coverage attaching at EUR 900m and exhausting at EUR 1.1bn, while earthquake protection would attach at EUR 600m and exhaust at EUR 800m, we are told.

As a result, the Class A notes will have an initial attachment probability of 3.64%, an initial expected loss of 3% and are being offered to cat bond investors with price guidance in a range from a spread of 5.5% to 6.25%.

A EUR 75 million Class B tranche of notes will provide Generali with only Italy earthquake protection, attaching slightly lower down at EUR 400m and exhausting coverage at EUR 500m, we are told.

The Class B notes will have an initial attachment probability of 2.64%, an initial expected loss of 2.33% and are being offered to cat bond investors with price guidance in a range from a spread of 5.25% to 6%, sources said.

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

Under the terms of Generali’s Green, Social and Sustainability Insurance-linked Securities Framework, the new Lion Re DAC cat bond will free up an amount of the insurers own capital equal to its limit which will 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 encouraging to see Generali continuing to push the boundaries of ESG within the catastrophe bond market, by following its strict framework and attempting to deliver broader sustainable benefits while also benefiting from the capital markets backed reinsurance the catastrophe 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.

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The stable return profile of catastrophe bonds and their historically low correlation with broader financial markets have traditionally been the main reasons investors considered an allocation of cat bonds into their portfolio, however, more recently, investors have started recognising catastrophe bonds for their social impact, as per a new report from the Man Group.

According to the firm, a “new breed” of cat bonds has now emerged, aimed at preventing disaster and extending coverage for low-income countries unable to mobilise proper financing to fight a looming disaster.

The UN reportedly defines resilience as the “ability of a system, community or society exposed to hazards to resist, absorb, accommodate to and recover from the effects of a hazard in a timely and efficient manner.”

The Man Group continued, “The cover that catastrophe insurance provides sits firmly within this definition.

“Not only does it compensate for losses, but the use of parametric triggers can mean that payments are made more quickly than if actual losses had to be assessed (particularly in emerging markets where the claims process is generally less well developed).”

Continuing, “Now, cat bonds are also emerging as a socially responsible investment. For the insured risk, cat bonds provide an element of risk transfer back to investors.”

Man Group highlighted named storm cover for Jamaica, earthquake cover for the Turkish Catastrophe Insurance Pool, and the Pacific Alliance cat bonds as examples which illustrate how these insurance-linked securities (ILS) instruments can aid in building risk transfer resources and disaster resilience.

“As a sign of confidence in this asset class, the market capitalisation is growing at an impressive rate.

“New, innovative bonds are emerging as a very effective tool in providing a new kind of social benefit, while helping generate uncorrelated risk-adjusted returns for investors,” the firm’s report concluded.

Environmental, social and governance (ESG) investing remains a key area of focus for the insurance-linked securities (ILS) market and with the asset class ticking many boxes for a socially responsible mandate, investors are increasingly looking to understand the beneficial features of the cat bond instrument.

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During the full-year 2023, the catastrophe bond and insurance-linked securities (ILS) team at private markets focused investment manager Schroders Capital allocated over US $817 million to transactions that specifically help in reducing the insurance protection gap.

Schroders Capital has quantified this area of impact that its cat bond and ILS investment management unit has been making for a recent report on the firm’s broader sustainability focus.

While it is clear that catastrophe bonds and insurance-linked securities (ILS), as an alternative mechanism for sourcing reinsurance capital, are inherently providing protection against disaster and enabling the insurance industry to better bear the risks it underwrites, Schroders Capital has categorised transactions it specifically feels are making a difference on helping to cover more uninsured economic losses.

The investment manager sees its capital making a difference, saying that if “managed carefully, can unlock… significant improvement potential for people and planet.”

One area is in driving increased availability of insurance and reinsurance protection, specifically, “through increased climate insurance coverage in emerging markets, private equity or via ILS cat bonds.”

Schroders Capital further explained, “In 2023, only 40% of losses resulting from natural disasters globally were covered by insurance, leaving a value of US$172 billion uninsured.

“Our ILS team works to reduce this protection gap by allocating a percentage of their sustainable investment portfolios to specific transactions designed to increase insurance coverage, providing a sense of security to communities providing rapid relief when a disaster hits, and enhancing overall resilience. Developing and emerging markets are the most vulnerable to the consequences of climate change.”

In addition, Schroders Capital highlighted that between 2014 and 2023, some 85% of economic losses caused by natural disasters in Asia were not covered by insurance.

Highlighting the $125 million Charles River Re Ltd. (Series 2024-1) catastrophe bond, that was sponsored by American European Insurance Company, Schroders Capital explained why this transaction was deemed to contribute to narrowing the insurance protection gap.

“The need for such cover was exemplified with Superstorm Sandy: in such events, risks carriers often face ‘concurrent causation’ and are caught between the homeowners insurance company and the flood insurance company, one arguing that the event was caused by flood, the other one by wind. It is costly and leaves the policyholder uncovered, impacting the reputation of the insurance company and the industry more broadly.

“With this cat bond, the sponsor offered a flood endorsement on each quotation, resulting in a differentiated product with the target being value-oriented mass affluent homeowners,” the asset manager explained.

Despite certain deficiencies when it came to ESG scoring this catastrophe bond, Schroders Capital noted, “The transaction structurally and explicitly addresses the protection gap when it comes to the availability of coastal flood risk which is generally not offered by the insurance market.”

Insurance-linked securities (ILS) is an area that Schroders Capital sees as a focus in its sustainability and impact efforts.

“Our ILS sustainable strategies, including one of the world’s largest cat bond funds, are a good example: they provide a suitable reinsurance alternative for local governments or NGOs against e.g. extreme whether events, reducing insurance protection gap while at the same time delivering competitive financial returns,” the company said.

Schroders Capital has also been one of the ILS managers that have helped to drive greater ESG transparency through the catastrophe bond and broader ILS marketplace.

The investment manager was a founding member of the ILS ESG Transparency Initiative, which was formed as an insurance-linked securities (ILS) industry group focused on enhancing environmental, social and governance (ESG) transparency in the ILS market.

Schroders Capital believes that effort has made a significant contribution so far, highlighting that ESG disclosure has increased in the marketplace.

The company said that its internal data suggests “that 77% of ILS cat bond transactions have made ESG questionnaires available deals in Q4 2023,” which is a significant increase.

Georg Wunderlin, CEO, Schroders Capital, commented, “Sustainability is more critical than ever to deliver long-term competitive returns. It is simply a once in a generation business opportunity.

“Our ambition is to build a new type of private markets firm, one which is anchored in sustainability and delivers the superior performance and real-world difference our clients expect from us.”

ESG investing, sustainability and opportunities they present, remain an area of focus for the insurance-linked securities (ILS) market. Read more of our insights on this topic here.

Schroders Capital invested $817m+ in ILS that help reduce protection gap in 2023 was published by: www.Artemis.bm
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Italian and global insurance giant Assicurazioni Generali S.p.A. has revised its framework for green catastrophe bonds to incorporate updates and expand its scope, now publishing a Green, Social and Sustainability Insurance-linked Securities Framework in its place.

Generali was early to recognise the potential for insurance and reinsurance linked investments to have green, or environmental, social and governance (ESG) credentials.

Because of the insurers focus on this, Generali launched its own framework for Green insurance-linked securities (ILS) back in 2020.

That framework defined how Generali could use the freed-up capital benefit achieved through its sponsorship of an ILS or catastrophe bond transaction for Green asset investments.

At its core, that meant an amount equivalent to the capital relief benefit achieved through issuance of a Green ILS or cat bond transaction could be exclusively used to allocate capital to, or refinance, green initiatives, projects or assets, under Generali’s framework.

The insurer sponsored its first green catastrophe bond issuance in 2021, the €200 million Lion III Re DAC transaction.

Those €200 million of cat bond notes provided Generali with reinsurance protection against certain losses from European windstorms and Italian earthquakes across a multi-year term.

As we later reported, Generali said that, in the case of the Lion III Re catastrophe bond, it freed up €28.1 million of capital for the insurer, under regulatory capital relief calculated on the basis of its Solvency Capital Requirement at the inception of the cat bond risk period.

That freed up capital was allocated to a sustainable investment deemed to make a positive environmental impact, in this specific case it refinancing a green asset that Generali already had interest in, the Tour Saint-Gobain in Paris, a building project that asset management unit Generali Real Estate was behind, and that on completion achieved the highest marks possible for four international environmental certifications.

It was found that the €28.1 million of capital, freed up due to the issuance of the Lion III Re catastrophe bond, had served to avoid 35.1 tCO2e of greenhouse gas emissions, after an audited impact evaluation undertaken by a third-party specialist.

Now, Generali has revisited the green ILS framework and updated it to become the Generali Green, Social and Sustainability Insurance-linked Securities Framework.

The insurer said that the company “recognises the crucial role the financial industry must play in the transition to a low carbon economy and strives to have an active role in the further development of a sustainable financial market.”

To enhance its ability to address environmental and sustainability issues, where Generali can affect positive change, the new framework has been developed under which the insurer can issue sustainable ILS instruments.

The company further explained, “This Green, Social and Sustainability ILS Framework represents Generali’s latest efforts to align its program with best practice, promote SRI principles, and enhance its ability to support stakeholders in realising their green and social objectives. We see the issuance of Green, Social and Sustainability (‘GSS’) labelled ILS as an effective tool to make a positive contribution to the climate and/or the society, while achieving the Sustainable Development Goals of the United Nations (‘UN SDGs’).

“Through GSS ILS, we aim to further diversify our investor base, focusing on socially responsible and highly dedicated sustainable investors and by strengthening the relationship with the existing investor base.”

As the company has taken important steps to enhance its green strategy since the publication of the first Green ILS Framework, Generali says it has now expanded it further, launching the new framework to align with its Green, Social and Sustainability Bond Framework that was published in December 2023.

Now, under the new Green, Social and Sustainability ILS Framework, Generali can categorise different types of sustainable ILS, including:

• Green ILS, to finance and/or refinance Eligible Green Assets.
• Social ILS, to finance and/or refinance Eligible Social Assets.
• Sustainability ILS, to finance and/or refinance a mix of Eligible Green Assets and Eligible Social Assets.

So as to maximise the impact of the new framework and its contribution to a sustainable financial market, Generali said that it is designed “to reflect the structure of an ILS transaction, which allows the allocation funds to Green, Social and Sustainability initiatives following two different approaches.”

This is, through the use of the freed-up capital benefit, as in the previous case with Lion III Re, and also by use of the proceeds segregated in the SPV in a portfolio of Green and Social investments.

By expanding the scope of its framework for green, social and sustainable cat bonds and ILS, Generali is also aligning with the needs of many investors, that continue to have a strong focus on ESG appropriate assets.

Generali has commissioned Sustainalytics to conduct an external review of the new Green, Social and Sustainability ILS Framework.

Giving its opinion, that company explained, “Sustainalytics is of the opinion that the Generali Green, Social and Sustainability Insurance-linked Securities Framework is credible, impactful and will deliver overall positive environmental and social impacts. Sustainalytics is further of the opinion that the principles of impact and transparency that underlie the responsible investment industry, as well as many of its norms and standards, are applicable to the green, social and sustainable insurance-linked securities (ILS) instruments to be issued under the Framework.

“Sustainalytics is of the opinion that the Generali Green, Social and Sustainability Insurance-linked Securities Framework is impactful, transparent and in alignment with core market expectations.”

Generali’s first green catastrophe bond, the Lion III Re DAC transaction, remains in-force through to June 2025.

With this new framework in place, it will be interesting to see what green, social or sustainability features the insurer incorporates into its next cat bond deal.

Read our stories about ESG investment in catastrophe bonds and insurance-linked securities (ILS).

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Banque Bonhôte & Cie, a Swiss private bank, investment firm and wealth manager, has announced the launch of a new environmental, social and governance (ESG) focused fund strategy that will incorporate catastrophe bonds as one of its allocations.

Pierre-François Donzé, Head of Asset Management at Banque Bonhôte, said that, “Our approach and the integration of ESG criteria, is based on a quantitative allocation methodology to identify appropriate investment opportunities in the entire spectrum of the fixed income bond universe.”

The newly launched Bonhôte Selection Global Bonds ESG fund strategy does not follow a benchmark, instead leveraging quantitative methods to identify assets to invest in from the fixed income universe, based on indicators that define the attractiveness of one type of bond, over another.

These can range from the majority of the global fixed income universe, including sovereign bonds, investment-grade and high-yield corporate bonds.

But in addition catastrophe bonds are a specific asset class that will be targeted for this ESG focused investment fund strategy, the private bank explained.

The private bank notes that, catastrophe bonds, “Offer an advantageous risk/reward and provide useful diversification through a performance that is largely uncorrelated with conventional financial markets.”

Explaining that, “CAT bonds, which are part of the insurance-linked securities (ILS) category, are used by insurers and reinsurers to transfer the risks of predefined events to investors.”

The strategy has been optimised for investors whose reference currency is the Swiss franc and takes into account the cost of currency hedging as well.

The use of ESG criteria to identify opportunities is “a fundamental part of our investment strategy,” Banque Bonhôte & Cie said.

“The fund promotes environmental or social features, or a mix of the two, by investing in the vehicles and securities of issuers with an ESG profile above the median of their peers. Many controversial business activities and sectors are automatically excluded,” the company further explained.

Catastrophe bonds can be up to a maximum of 20% of the ESG investment fund strategy

Julien Stähli, Director of Investments, stated “This new fund gives pride of place to ESG criteria and marks a further step in our long-standing commitment to responsible investment and quantitative approaches.”

Donzé also said the approach taken, “Makes it possible to add value compared to strategies limited to a single market segment. The indicators used estimate the relative attractiveness of the various segments of the bond market on a historical basis.”

He also said that the Global Bonds ESG fund portfolio will be “dynamically rebalanced” when the indicators used suggest this is necessary.

It’s clear that Banque Bonhôte & Cie recognises the investment qualities of catastrophe bonds and the diversifying benefits they can deliver to portfolios, as well as the inherent ESG qualities given their role in the provision of critical disaster risk financing to support the global insurance and reinsurance industry.

As we previously reported, Banque Bonhôte & Cie had said before that catastrophe bonds, as an asset class, exhibits the rare property of price moves that are independent of broader financial markets and so can be considered “the only true source of diversification.”

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Tokio Marine Holdings, Inc., through its subsidiary Tokio Marine & Nichido Fire Insurance Co. Ltd., has become the first Japanese insurer to make use of a SOFR-based World Bank Sustainable Development Bond as a permitted investment within its latest catastrophe bond issuance, the company highlighted today.

As Artemis has been reporting, Tokio Marine has been in the market since February and has now secured its targeted $100 million Kizuna Re III Pte. Ltd. (Series 2024-1) catastrophe bond recently, with the reinsurance coverage from the transaction priced at the low-end of initial guidance.

Now, the Japanese insurer has highlighted its use of the proceeds of the catastrophe bond issuance to purchase a sustainable development bond, saying that using this “as collateral for the Kizuna Re III cat bond is supporting the achievement of sustainable development goals and contributing to the realization of a sustainable society.”

Use of proceeds of cat bond issues to invest into financing for sustainable development helps sponsors align their catastrophe bond issues with their own environmental, social and governance (ESG) agendas, while also making the investment more appealing to investors with an ESG focus or mandate.

Tokio Marine used the proceeds of the Kizuna Re III 2024-1 catastrophe bond, that provides it with earthquake reinsurance and was issued out of Singapore, to purchase a SOFR-based Sustainable Development Bond issued by the World Bank Group’s International Bank for Reconstruction and Development (IBRD).

The company said that, through its sustainability strategy, it aims to “solve social issues through business activities and contribute to the realizations of a sustainable society” as a medium- to long-term growth engine and is accelerating its efforts to take climate action, improve disaster resilience, and protect the natural environment.”

The company said that, as part of its goal to improve disaster resilience in what is one of the most disaster-prone countries in the world, Tokio Marine has been a regular user of catastrophe bonds, alongside purchasing traditional reinsurance capacity.

“As a part of these strategies, besides sponsoring the issuance of the Kizuna Re III cat bond, TMNF has elected to invest the proceeds from the sale of the Kizuna Re III cat bond in a SDB issued by IBRD (rather than money-market funds), which is the first example of a Japanese insurer doing so since IBRD notes transitioned from LIBOR to SOFR,” the company explained.

Adding that, “The principal amount of this catastrophe bond raised from qualified institutional investors will be invested in a SDB issued by IBRD under its Global Debt Issuance Facility. The net proceeds of the SDB will be used by IBRD to fund projects, programs, and activities in IBRD’s member countries designed to achieve positive social and environmental impacts and outcomes.”

It’s encouraging to see the use of sustainable development bonds as collateral investments in the catastrophe bond market expanding further beyond just the World Bank, to private insurance sector cat bond sponsors.

The World Bank itself was the first to do so this, since when insurance giant Assicurazioni Generali S.p.A. developed its framework for Green insurance-linked securities (ILS) which saw the proceeds of one of its catastrophe bonds used to refinance a green asset in an effort to help avoid greenhouse gas emissions.

But, Tokio Marine is the first private insurance or reinsurance market sponsor of a catastrophe bond to use a puttable SOFR linked Sustainable Development Bond from the IBRD, which marks an efficient way to structure a cat bond with collateral that can be put to work in supporting sustainable or ESG driven goals.

As a reminder, Gallagher Securities, the insurance-linked securities (ILS) specialist arm of reinsurance broker Gallagher Re was the sole structuring agent for this new cat bond for Tokio Marine, so will have been instrumental in incorporating the sustainable development bond as permitted investments for the collateral, within the overall cat bond structure for this issuance.

You can read all about this new Kizuna Re III Pte. Ltd. (Series 2024-1) catastrophe bond transaction and every other Tokio Marine sponsored cat bond in our Artemis Deal Directory.

Tokio Marine is first Japanese cat bond sponsor to use sustainable development bond was published by: www.Artemis.bm
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