Cat Bond Funds Deliver 10.22% Rolling Returns as BarmeniaGothaer Taps ILS for Flood Resilience
By The Reinsurance Daily Editorial ·
Cat Bond Funds Deliver 10.22% Rolling Returns as BarmeniaGothaer Taps ILS for Flood Resilience
Cat Bond UCITS Funds Report 10.22% Rolling 12-Month Return
UCITS catastrophe bond funds produced an average return of 0.62% in June, completing a strong first half of the year and driving the 12-month rolling average return to 10.22%. This performance reflects the continued high yields available in the ILS market and a relatively quiet period for major catastrophe loss events impacting the outstanding bond portfolio. The sustained positive returns are attracting further capital into the liquid cat bond strategy, providing a competitive source of capacity for reinsurers and cedents. The market has successfully absorbed significant new issuance while maintaining pricing discipline, a dynamic evidenced by the consistent monthly performance throughout the last year.
BarmeniaGothaer CFO Touts Resilience from Yardstick Re Flood Bond
The Chief Financial Officer of BarmeniaGothaer confirmed that the group's Yardstick Re catastrophe bond has become a cornerstone of its resilience strategy for extreme flood events in Germany. The transaction transfers a specific layer of peak flood risk to the capital markets, diversifying the insurer's traditional reinsurance panel and securing multi-year protection. While the full structure is not public, risk metrics associated with the placement included figures around 1.95% and 2.0%, indicating the modeled level of risk being ceded. According to the CFO, this ILS placement is integral to managing the group's earnings and capital volatility in the face of increasing weather-related claims severity.
The use of the Yardstick Re cat bond is a key element for us to strengthen our resilience to extreme events like the flood disaster in 2021.
Key Takeaways
- The strong 10.22% rolling returns from UCITS cat bond funds create a favorable issuance environment for sponsors like BarmeniaGothaer seeking specialized coverage. Robust investor appetite for yield should support competitive pricing for well-structured, diversifying perils such as European flood.
- With UCITS funds posting a 0.62% return in June alone, underwriters must anticipate continued capital inflows into the cat bond segment. This liquidity will likely exert moderating pressure on pricing for named-peril cat bonds, particularly outside the peak US wind zone, ahead of the next renewal cycle.
- Cedents negotiating European flood coverage can now reference the successful Yardstick Re placement as a pricing benchmark. The deal's metrics, including the 1.95% risk figure, demonstrate capital market support for this specific peril, providing an alternative to traditional capacity.
- BarmeniaGothaer’s Yardstick Re bond highlights the market's growing reliance on ILS for secondary perils. This trend creates a portfolio-level risk if modeled assumptions for perils like European flood prove less robust than for peak US perils, potentially leading to basis risk challenges and unexpected aggregation of losses for investors.
Sources
Cat bond fund UCITS average 0.62% return in June. 12-month rolling-return 10.22% — artemis.bm
Yardstick Re flood cat bond underpins BarmeniaGothaer’s resilience to extreme events: CFO — artemis.bm