| ▲ | blakepelton 17 hours ago | ||||||||||||||||||||||||||||||||||
I've asked two financial advisors about CAT bonds. One had never heard of them and the other said were about as risky as crypto. I guess this is such a niche product that there isn't widespread knowledge about it. I wonder how much more diversified $ILS could be if it were larger. Would a 10x increase in assets under management give it significantly less volatility because it could do a better job spreading risk around the globe? | |||||||||||||||||||||||||||||||||||
| ▲ | rrjjww 17 hours ago | parent | next [-] | ||||||||||||||||||||||||||||||||||
The lack of information was my inspiration for building Riskvest. I called my own broker and when I said catastrophic bonds they asked if I meant buying bonds already in default. On the risk side - your comments here are part of the myth I’m trying to dispel and will have lots more to say in future posts. Yes for a single CAT bond you are exposed to potential 100% principle losses. But if you buy a bundle of CAT bonds that focus on say California Earthquake, Florida Hurricane, Japanese Typhoon, and a Cyber Event, you can imagine the diversification benefit you get there. I’ve already created a very very simple model for people to play around with and learn the intuition for CAT bond return patterns. A default means 100% loss and this is unique vs. other bonds. I plan in the future to build a much more robust model. https://www.riskvest.io/data-lab/cat-bond-portfolio-simulato... | |||||||||||||||||||||||||||||||||||
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| ▲ | jbs789 8 hours ago | parent | prev | next [-] | ||||||||||||||||||||||||||||||||||
There are institutional funds but generally it’s a small market with very limited retail presence. Schroders has one. (Artemis is a great source of info in the space - niche trade publication.) https://www.artemis.bm/ils-fund-managers/schroder-investment... | |||||||||||||||||||||||||||||||||||
| ▲ | bvan 15 hours ago | parent | prev | next [-] | ||||||||||||||||||||||||||||||||||
It has been growing slowly for the past 25 years. The limited market size is a reflection of the demand by traditional insurers and reinsurers, for alternative sources of capital. This is as it should be.. when traditional players start transferring risk to the capital markets motivated by the fees involved, or cheaper rates (premium), then you really start worrying about moral hazard i.e. ‘bad risks’ getting transferred to investors. | |||||||||||||||||||||||||||||||||||
| ▲ | olooney 17 hours ago | parent | prev [-] | ||||||||||||||||||||||||||||||||||
CAT bonds are typically restricted to institutional investors. I would be very surprised if you could even buy one without being a QIB. | |||||||||||||||||||||||||||||||||||
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