ICOSA INVESTMENTS
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Catastrophe bonds are complex financial instruments that carry material risk of partial or total loss of principal. They are not suitable for all investors. Access is restricted to professional and institutional clients in Switzerland within the meaning of the Swiss Financial Services Act (FinSA, SR 950.1, Art. 4 para. 3–4). This content is not directed at retail clients within the meaning of FinSA Art. 4 para. 2. This content is intended only for persons in Switzerland and is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to applicable law or regulation. It is not directed at US persons.
Any projections, modelled loss scenarios, expected return ranges, or other forward-looking statements are based on assumptions and models that may prove incorrect. They are not guarantees of future performance. Past performance is not indicative of future results. Actual outcomes may differ materially from any forward-looking statement.
Information is provided without any representation or warranty, express or implied, as to its accuracy, completeness, or timeliness. There is no obligation to update or revise this content. It has not been reviewed or approved by any financial regulator. No tax or accounting advice is provided. To the extent permitted by applicable law, no liability is accepted for any loss or damage arising from reliance on this content. Investors must obtain independent legal, regulatory, tax, and financial advice appropriate to their circumstances before making any investment decision.
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Educational Resources
Knowledge Library
The knowledge library provides educational content on some asset classes, market mechanics, risk factors, and structural features within alternative fixed income.
The content in this knowledge library is for informational purposes only and does not constitute investment advice, a recommendation, an offer, or a solicitation to buy or sell any financial instrument.
Knowledge Framework
Data, science, and institutional relevance
The asset classes introduced in the knowledge library share a number of common characteristics. These include identifiable underlying risk drivers, structural features that can often be described clearly, and a level of quantitative transparency that may allow institutions active in these markets to incorporate data and scientific methods as part of their investment process. The purpose of this section is to explain those characteristics in a clear and accessible way.
Four principles.
Structural Diversification
Some alternative fixed income asset classes can be driven by risk factors that are structurally distinct from those of traditional markets. Cat bonds are one example: their return profile is linked primarily to insured event outcomes rather than to conventional corporate or sovereign credit cycles.
Quantifiable Risk
A common characteristic of certain asset classes in this section is that their core risks can often be modelled, stressed, and described in probabilistic terms. This can support a more structured understanding of potential return and loss drivers.
Risk Premium Focus
Another shared characteristic is that return expectations may be linked to identifiable risk premia relative to expected loss, carrying cost, and structural complexity, rather than being framed primarily by headline yield.
Institutional Quality
These asset classes are also often associated with institutional requirements around documentation, valuation oversight, risk reporting, governance, and transparency. Such characteristics can be important for clear communication and robust investor due diligence.
Knowledge Library
Asset Classes
Cat Bonds
Insurance risk premia with historically low market correlation.
Catastrophe bonds transfer (mostly) natural disaster risk from insurers, reinsurers, and other cedants such as corporates or governments to capital market investors. Returns are typically driven by insured event outcomes rather than corporate or sovereign credit cycles, offering potential diversification for multi-asset portfolios.
Indicative Market-Level Characteristics
The figures below are indicative market-level reference points for broad cat bond exposure. They are not product-specific performance targets and should be interpreted alongside the relevant fund documentation.
~USD 60bn
Market Size
Indicative size of the global cat bond market, reflecting the asset class's established institutional depth. The market has grown significantly over the past two decades and continues to expand, with new issuances across a range of perils and geographies.
T-Bills + 3–6%
Typical Gross Yield
Indicative market-level yield range for cat bond exposure. Realised outcomes remain event-dependent. This yield is gross of fees, expenses, and potential losses, and it is not a target or guarantee of performance for any specific product.
US Wind, EQ, EU Wind
Dominant Perils
The market is predominantly exposed to US windstorm, earthquake, and European windstorm risk. Other natural catastrophe perils such as flood or wildfire are growing but still represent a smaller share of the overall market. In addition, some transactions may reference man-made perils such as terrorism, cyber, or healthcare-related risks, although these remain a more limited part of the broader cat bond universe.
Often Diversifying
Correlation to Financial Markets
In normal market environments, cat bond returns tend to have limited dependence on traditional financial-market fundamentals. However, in extreme systemic stress scenarios, correlations can increase materially as risk premia across markets reprice sharply. Periods of market dislocation or liquidity shortages can also lead to mark-to-market effects, even where the underlying insured risk exposure has not changed materially.
Main Risk Factors
The points below highlight some of the main risk factors, but they are not intended to be an exhaustive list.
Insured Events
A major insured event (e.g. Category 5 hurricane landfall or a strong earthquake in a densely insured region) can trigger material capital losses on exposed bonds. Loss reserving can also be uncertain, especially in the early weeks and months after an event, which can lead to mark-to-market volatility even for bonds that ultimately do not incur losses.
Model Risk
Catastrophe models are probabilistic estimates, not guarantees. Actual event impacts can deviate significantly from modelled expectations, especially for novel or compound events. Model assumptions, data quality, and calibration methodologies can all contribute to discrepancies between expected and realised outcomes.
Liquidity Risk
The secondary cat bond market is less liquid than investment-grade credit. Spreads can widen materially in risk-off environments, creating temporary mark-to-market losses. Also, funds may not be able to exit positions quickly without accepting a significant discount, especially for larger allocations or less liquid tranches. Gating or other liquidity management tools may be employed thus limiting investor exit options.
Climate Trend Risk
Secular changes in storm frequency, intensity, or geographic distribution may not be fully reflected in historical model calibration. Whilst cat bond managers closely monitor emerging climate science and update models accordingly, there remains uncertainty around how climate change may impact future risk profiles and the adequacy of historical data as a guide.
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