The US$2 billion in catastrophe bond issues in late 2010 – which brought total issuance for the year to US$4.8 billion, making it the second strongest year on record – saw the return of these diversifiers, or “non-US peak cat” instruments, according to Willis Capital Markets & Advisory. The return of diversification was welcomed by the market, Willis stated. A soft traditional reinsurance market, supported by an excess of capital, was able to absorb most global catastrophe risks at prices well below those in the catastrophe bond market. “As a consequence, ILS supply has been dominated by the peak US perils of hurricane and earthquake, where traditional reinsurance supply is more limited,” the brokerage stated. But for superannuation funds, catastrophe risk is uncorrelated to equity and credit risk, so diversification within the catastrophe bond universe is not really needed.
Investments
The $205 billion Aware Super says that around 15 per cent of assets in its high-growth option are exposed to the AI thematic, but says that finding the portfolio's true concentration will require looking beyond simple dollar aggregation. Head of investment strategy Michael Winchester unpacks the approach and why the fund has to be “really discerning” with where it allocates to in the future.
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