Speaking during a webinar held in August by the team behind the Brookmont Catastrophic Bond ETF (ILS), Rick Pagnani, co-founder of King Ridge Capital Advisors LLC, the firm that manages the cat bond ETF portfolio, said that while spreads have tightened in the space he believes they still adequately compensate for the risk.Alongside Pagnani participating in the webinar, Ethan Powell, Principal & Chief Investment Officer of Brookmont Capital Management, LLC discussed the fact the catastrophe bond market has remained disciplined through the recent tightening phase we’ve seen.Pagnani commented, “Certainly we’ve seen some tightening of spreads over the last 90 days, and the anticipation is there will be continued issuance, particularly given the tightening of spreads.So it makes sense that folks who have been issuing will look to expand.

In addition, we’d expect new entrants in the market.We will see those toward the end of the third quarter, beginning of the fourth.“We’re at a nice trajectory right now.

In terms of spreads, I expect us to remain disciplined.Obviously, Mother Nature will have a big say in that, we’ll see how things go over the next 60 days. But I don’t expect much further compression at this point.We think they’re still at a very good level, certainly comparable to high-yield, where we’re 350 wider.

“So we’re happy with the risk return profile of the asset class.It probably has a little room, but I do think the market in general is more disciplined than, let’s say, going back to 2017 and prior. So I would expect things to remain at or around this level going forward for the remainder of the year, again, Mother Nature aside.” Powell added, “I think it’s important to note, as far as discipline in the market is concerned for those of you don’t know, there are independent actuaries that are evaluating the appropriateness of the risk return and a lot of the underlying assumptions.I always view the actuaries as playing the role of sort of a nationally recognised credit rating agency, where you can get some comfort that an independent expert has evaluated the appropriateness of the instrument.

So I think that adds to discipline in the market.” Pagnani added, “I do think we’re getting adequately compensated right now.You’ve seen changes in the market, going back to 2018, it was sort of a secular jump, if you will, in the price of risk, and it is being sustained.” Pagnani further explained that the levels where catastrophe bonds have been clearing for the last few years seems a “good price where bonds should trade.” On whether he feels investors are getting adequate premium for the risks they are taking on, Pagnani said, “We would argue, right now, that we are and that does anticipate climate change on both a macro and a regional basis.So we really take a hard look at it, we do have threshold levels, and we think the market is clearing those right now.” Finally, Powell highlighted the important role that catastrophe bonds are playing in the global insurance and reinsurance industry.

He explained, “There’s definitely an insurance gap that is presenting itself in the marketplace.Insurers are leaving geographic areas, writing-out specific perils in their coverage.So that earlier question about cat bonds participating in a market that’s increasingly dislocated, I think, is spot on, and we believe that capital markets provide a really good pricing mechanism for that risk.

Now is a great time to get in and start to capitalise on dislocations and risk returns.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.