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Lorenzo Volpi, managing partner, Leadenhall Capital Partners
20 May 2022

Leadenhall: Cat bond margins ‘highest in recent years’

Lorenzo Volpi, managing partner at Leadenhall Capital Partners, says the catastrophe bond margins are their highest in recent years, with average issuance spreads up +25% from 2021 and are approaching their six-year high. Modelled risk levels are remaining “relatively constant”, Volpi said in a research note.

Cat bond issuance reached $3 billion in the first-quarter of 2022, taking the outstanding market to a record high, he said.

“Another $2 billion printed during April 2022 and early May 2022, with at least an extra $2 billion expected to come into the market before H2 2022 through a combination of renewals of expiring cat bonds and new first-time issuers as the range of re/insurance sponsors continues to expand,” Volpi said.

Prospects for investors have improved, he added, owing to a local imbalance between supply and demand. Both spreads at issuance and spreads in the secondary market have increased for every peril, “opening a window” to deploy capital at higher yields, he said.

That window of opportunity is expected to last until Q3/Q4, as there is broad market consensus for additional strong issuance activity, he continued. Further hardening in the traditional reinsurance market is expected as it approaches the 1 June and 1 July renewals, he concluded.