Insurance-Linked Securities
December 2024
- Diversification within the asset class has grown over the last few years
- As the world becomes more digitised demand for cyber reinsurance is increasing rapidly
- We anticipate new capital flowing into the ILS market creating pockets of opportunity
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
Since 2022, traditional markets have enjoyed a ‘good run’. The opportunity for investors in 2025 will be to find other asset classes that are genuinely non-correlated to those traditional asset classes without sacrificing (or even improving) overall portfolio return. While insurance-linked securities (ILS) pricing is coming off its historic peak, spreads remain well above the longer-term historical average, and diversification within the asset class has increased over the past few years.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
Cyber ILS: as the world becomes more digitised and interconnected, the demand for cyber reinsurance is increasing rapidly. While not mandatory, corporations increasingly see the value in purchasing cyber coverage to protect themselves from catastrophic cyber events. S&P projects the cyber reinsurance market will grow by 25% to 30% annually, meaning traditional reinsurers will soon – if some have not already – meet their internal risk tolerance levels for cyber.
The catastrophe (cat) bond market is, therefore, seeing increasingly more cyber ILS issued to cover this growing risk stressing traditional balance sheets. The opportunity for cyber ILS investors? Issuers of these securities are willing to attractively compensate investors on a risk-adjusted basis for absorbing the risk of systematic cyber events. We believe this is and will remain a significant investment opportunity for cat bond investors.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
The ILS asset class has broadly enjoyed positive returns over the last couple of years. We inevitably expect increased interest and new capital to flow into the market, creating pockets of risk and opportunity that can be mitigated and captured by an experienced ILS manager.
Nelson Seo, co-founder and a managing director of Fermat Capital, manages Cat Bond strategies for GAM Investments.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.