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For myself, I'll buy insurance, I'll invest (via mutual funds) in insurance companies, but I'm not too keen on stepping into the insurer's shoes (assuming some of the risk on the insurer's side of policies).
Barron's mentioned in July 21, 2025 issue that CAT bond issuance for YTD (then) was already more than that for full 2024. Be careful with hot areas attracting lot of money.
If there are no recent catastrophic events, then the CAT bond investors win.
In the last few years, there have been some catastrophes related to fire and flooding.
Barron's August 19, 2024 had this: INCOME FUNDS. Catastrophe bonds (CAT BONDS) are speculative insurance-linked bonds whose principals absorb insurers’ catastrophic losses (from hurricanes, earthquakes, etc), if any. If there are no, or not enough, claims for catastrophic events, then the cat bond holders win. Mentioned are OEFs ACBAX, SHRIX, EMPIX; several ETFs are coming; there are also some (nontraded) interval-funds.
Wouldn't a good mutual fund ticker be "SUCER"? For, Seems Unlikely Catastrophic Events Result?
Cat bonds have had double digit returns going on three years now with virtually no volatility along the way. The last major triggering event was Hurricaine Ian in 2022. Most cat bonds are protection against Florida landfall and property damage events. The cat bonds weren’t impacted by Hurricaine Helene which virtually closed parts of NC for weeks and was the most damaging catastrophic event to ever hit that state.
For myself, I'll buy insurance, I'll invest (via mutual funds) in insurance companies, but I'm not too keen on stepping into the insurer's shoes (assuming some of the risk on the insurer's side of policies).
Barron's mentioned in July 21, 2025 issue that CAT bond issuance for YTD (then) was already more than that for full 2024. Be careful with hot areas attracting lot of money.
If there are no recent catastrophic events, then the CAT bond investors win.
In the last few years, there have been some catastrophes related to fire and flooding.
Barron's August 19, 2024 had this: INCOME FUNDS. Catastrophe bonds (CAT BONDS) are speculative insurance-linked bonds whose principals absorb insurers’ catastrophic losses (from hurricanes, earthquakes, etc), if any. If there are no, or not enough, claims for catastrophic events, then the cat bond holders win. Mentioned are OEFs ACBAX, SHRIX, EMPIX; several ETFs are coming; there are also some (nontraded) interval-funds.
Thanks - definitely being mindful of how hot the space has been and the related risks from that. Sizing an allocation accordingly
New catastrophic bond ETF from Brookmont is ticker ILF.
I dug pretty deep into it. I couldn’t get comfortable just yet with them providing the necessary liquidity required in an ETF wrapper. In addition, imo scale is particularly critical for achieving diversification in this space and they are still quite small. The team managing it seems quite accomplished but those hurdles are not so much in their control
Almost all of my bond exposure is to corporate credit so I like the idea of a product that is not at all tied to economic activity. I went with a small allocation to ACBAX. It has grown and achieved decent scale. Stone Ridge minimums are $5M so really an institutional product. I had liquidity management and scale concerns with the ILS ETF at this point.
I am invested in CBYYX. An important advantage of CAT bonds is that they are not correlated with anything else. The main risk is due to the most devastating hurricanes, which are not triggered by bear markets. For an extensive source of information on these bonds, see https://www.artemis.bm/news/catastrophe-bonds/
There is some seasonality, though not strong. During hurricane season, risk is higher, but the returns during the last two hurricane seasons were higher (maybe we were lucky). One can see it by looking at the charts of CBYYX and EMPIX at M*
The above link has a chart of the returns for the CAT bond index going back to 2011. The past three years were by far the best and all because it was a “hard” pricing market going forward from Hurricaine Ian in 2022. Now all we are hearing about is the ‘soft” pricing market for 2026. I didn’t think we would see double digit returns in 2025. There is a seasonality in CAT because you are paid for the risk of holding through hurricane season. As those who have held also know, Fridays are when they are priced and there have been outsized gains during the year on Fridays especially going into and in Hurricaine season. I would think anyone just getting into CAT have missed the boat and gains going forward will be more like the gains in the above chart ex the past three years, The momentum has already slowed recently. But I could be wrong because of the still outsized yields on these funds They are a good diversifier and not subject to the whims of the stock and bond market. I hold some CBYYX but it is not a huge position and if the momentum continues to abate will sell.
Good primer, tks. Agree that the recent outsized gains cannot continue. However I still expect the spread on these over MM acceptable enough to be worth the risk. But just like you, I am keeping a close watch.
Comments
For myself, I'll buy insurance, I'll invest (via mutual funds) in insurance companies, but I'm not too keen on stepping into the insurer's shoes (assuming some of the risk on the insurer's side of policies).
Stone Ridge Hi Yld Reinsurance Risk PrmI
(SHRIX)
Victory Pioneer CAT Bond Y
(CBYYX)
Ambassador
(EMPIX)
If there are no recent catastrophic events, then the CAT bond investors win.
In the last few years, there have been some catastrophes related to fire and flooding.
Barron's August 19, 2024 had this:
INCOME FUNDS. Catastrophe bonds (CAT BONDS) are speculative insurance-linked bonds whose principals absorb insurers’ catastrophic losses (from hurricanes, earthquakes, etc), if any. If there are no, or not enough, claims for catastrophic events, then the cat bond holders win. Mentioned are OEFs ACBAX, SHRIX, EMPIX; several ETFs are coming; there are also some (nontraded) interval-funds.
I was, of course, making a joke. Still, most riskier bond funds have been doing quite well for 3 years.
Are you able to purchase CBYYX at low minimums? Fidelity min is $1M
The above link has a chart of the returns for the CAT bond index going back to 2011. The past three years were by far the best and all because it was a “hard” pricing market going forward from Hurricaine Ian in 2022. Now all we are hearing about is the ‘soft” pricing market for 2026. I didn’t think we would see double digit returns in 2025. There is a seasonality in CAT because you are paid for the risk of holding through hurricane season. As those who have held also know, Fridays are when they are priced and there have been outsized gains during the year on Fridays especially going into and in Hurricaine season. I would think anyone just getting into CAT have missed the boat and gains going forward will be more like the gains in the above chart ex the past three years, The momentum has already slowed recently. But I could be wrong because of the still outsized yields on these funds They are a good diversifier and not subject to the whims of the stock and bond market. I hold some CBYYX but it is not a huge position and if the momentum continues to abate will sell.
These funds are not risk-free. Example - recent Melissa hurricane was terrible, it hit Jamaica, but... then it moved north rather than to Florida.
Good primer, tks. Agree that the recent outsized gains cannot continue. However I still expect the spread on these over MM acceptable enough to be worth the risk. But just like you, I am keeping a close watch.