Catastrophe bond insurance reaches record value of $11bn
Coming soon after Swiss Re’s December of global insurance losses due to natural disasters, which reached $76bn (a 40% year-on-year increase), it is, perhaps, unsurprising that a year market by economic, political and social strife on a global scale should set such a precedent.
In addition to the aforementioned $11bn in pure property cat bonds, Artemis also recorded $761m of health and life bonds, $351m private cat bonds, and $4.3bn mortgage insurance-linked securities (ILS).
2020: A landmark year
as a “a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster,” cat bonds provide issuers with funding in the event that certain, pre-negotiated conditions are met.
Despite initially struggling at the onset of COVID-19, the company that the cat bond and ILS market soon rebounded. Subsequently, it managed to achieve consistent performance and recorded a particularly strong Q4 of $6bn.
"2020 was a landmark year," stated Steve Evans, Owner and Editor of Artemis. “"I've never seen such high-levels of issuance activity in the almost 25 years I've been tracking the development of ILS. This is testament to the resilience of the ILS market and its participants, as well as the utility of catastrophe bonds as a vehicle for transferring risk to the capital markets.”
A busy year ahead
With Martin Bertogg, Head of Cat Perils at Swiss Re, projecting that hurricane activity in the 2021 Western hemisphere will increase, the continual growth of the cat bond market seems a likely prospect:
”Large-scale climate conditions in the North Atlantic suggest elevated hurricane activity for 2021 and likely beyond. This increases the probability of a catastrophic landfall. Combined with the loss impact of secondary perils accelerated by climate change, insured catastrophe losses will only rise in the future.”
Evans is in agreement, stating, “All the signs point to another busy year for catastrophe bonds and ILS as risk transfer structures, as sponsors increasingly look to the global capital markets as an efficient source of insurance protection."
Aviva Investors launch $350m global climate credit fund
Aviva Investors has launched a climate transition global credit fund and has already allocated US$350m in strategic capital.
The funding, which has been provided by Aviva’s UK and Irish multi-asset funds, will be used to invest in companies offering goods and services that support climate change mitigation and the move towards a more sustainable future.
According to reports, the fund is in line with Aviva’s ESG philosophy on green policies and the United Nations sustainable development goals. It will be handled by portfolio managers Justine Vroman and Tom Chinery, as well as the noted climate specialist, Rick Stathers.
Aviva sustainable investment strategy
Companies excluded from the investment fund will be those entrenched in the fossil fuel industry, while enterprises that look at solutions to climate-related problems, such as sustainable transport, renewable energy and environmentally conscious lending, will be targeted.
Aviva Investors confirmed the goal is to capture transition-oriented companies with low decarbonisation and physical impact risk.
The initiative will also be benchmarked against the Bloomberg Barclays Global Aggregate Corporates Index, investing predominately in investment-grade companies and a small allocation of up to 5% in high-yield bonds.
Colin Purdie, Aviva Investors chief investment officer for credit, explained, "We can't pivot to a lower-carbon world if all we do is rule out the poor performers and only invest in companies that provide solutions to climate change. All companies need to adjust for a warmer, lower carbon world, which is why we felt it was important to use a wider transition lens to capture a larger set of businesses beyond those with obvious green credentials."
He said, "As investors, it is our responsibility to look beyond small pockets of green finance to engage and mobilise the liquidity of the wider credit market to assist in climate transition and the achievement of net zero carbon emissions."
Purdie added, "Companies that don't adjust their business models will be less attractive to investors and will present a less compelling investment case over time. Climate laggards may find that their financing becomes more expensive than that available to climate leaders."