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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.

Cat bonds offer sustainable investment potential amid rising climate risks: UBS was published by: www.Artemis.bm
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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.

Generali seeking to renew its “green cat bond” with EUR200m Lion Re DAC was published by: www.Artemis.bm
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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.

Cat bonds have emerged as a socially responsible investment: Man Group was published by: www.Artemis.bm
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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).

Generali updates insurance-linked securities framework to “green, social & sustainable” was published by: www.Artemis.bm
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