Insurance linked (catastrophe bonds)
| Real return | Cash + 3.5% +- 1.5% |
| Volatility | 4% |
| Correlation | 0 |
| Testfolio | CBYYX |
| Inflation | Nominal |
Insurance companies don’t hold risk on their books, but transfer it to reinsurance companies. And when reinsurance companies don’t want to hold risk on their books they can securitize them to investors. The main reason to securitize is that the risk is too concentrated and large, so called “peak perils”. In practice, this mostly means Caribbean / south-east US hurricanes.
Difference with investing in (re)insurer’s equity
Investing in (re)insurers just exposes us to growth and interest rate risk. The sector risk is uncompensated as with any other sector.
In contrast, investing in IL gives you no interest risk or growth risk, and only compensated sector risk. THis is quite unique, only comparable to volatility selling, which is a form of insurance as well.
Funds
As this is a niche asset class, I will list the investment options that don’t require millions:
| Name | Jurisdiction | TER | Minimum | IBKR.IE available |
|---|---|---|---|---|
| Stone Ridge (SHRMX) | US | 1.91% | 250k | Y |
| Amundi (ACBAX) | US | 2.20% | 500k | N (only CBYYX) |
| Fermat (GAM Star Cat Bond Ordinary USD Acc) | UCITS | 1.56% + 10% | 10k | Y |
| Leadenhall (Class A) | UCITS | 1.00% | 250k | N |
| Plenum Dynamic (Class R) | UCITS | 1.50% | 100k | N |
| Schroder (Class F) | UCITS | 1.50% | 100k | Y |
| Securis (Class D) | UCITS | 0.80% | 100k | N |
| Twelve Capital (Class B) | UCITS | 1.50% | 10k | N |