CAPTIVEINSIGHT
may be that more innovative cat bond
structures will provide the flexibility to
respond to some of today’s dark clouds
such as climate change, terrorism,
pandemics, energy extraction, toxic
clean-up etc.
Longevity
The contrasting risks of rising
longevity and extreme mortality pose
an interesting hedge proposition. It is
also worth noting that, while cat bonds
of today are short-term instruments,
some of the most dominant investors in
cat bonds are pension plans, which can
commit to longer-term investments.
It would be interesting to see longer
term instruments emerge within the cat
bond asset class.
“A major factor in determining the use
of cat bonds will be growth of the global
reinsurance industry, which in turn will
flow from increased insurance penetration.”
Regardless of diversifications such as
those speculated on above, a major
factor in determining the use of cat
bonds will be growth of the global
reinsurance industry, which in turn
will flow from increased insurance
penetration. According to Swiss Re’s
preliminary estimates (SIGMA Report,
21 August, 2013), in the first half of
2013 around 7,000 lives were lost and
total economic losses reached US$56
billion due to natural catastrophes and
man-made disasters. Insured losses
totalled US$20 billion. While there are
numerous barriers to greater insurance
penetration in emerging markets, there
is no doubt that, in addition to the
debilitating effects on local populations
and economies, catastrophes in underinsured perilous zones can also have
a significant detrimental impact on
developed economies. There is surely
a r