UBS Asset Management currently sees a little more value in collateralized reinsurance than in catastrophe bonds, while in recent months it benefited from positive revisions to wildfire loss reserves at an ILS manager it allocates to.The group remains positive on reinsurance and insurance-linked securities (ILS) in general, remaining just above neutral in its weighting for the asset class.With allocations to both a catastrophe bond fund manager and a collateralized reinsurance strategy through an ILS manager, UBS has exposure across the spectrum and continues to see positive value in both.However, in a recent update, UBS Asset Management explained, “Cat bonds still offer reasonable value from a historical perspective, but to a lesser degree than collateralized reinsurance.

“Both risk-free rates and cat bond spreads are lower than at the same time last year, while expected losses have remained fairly static.As such, loss-adjusted yields are projected to be in the high single digits vs.the low teens at this time last year.” While, “Pricing for collateralized reinsurance is off the highs of late 2023 / early 2024, it’s still quite attractive in a historical context,” the asset manager said.

While softening is anticipated around the mid-year renewals, the asset manager is not deterred and highlights the expectations that price movements will not be even across the market, with some areas still seeing increases, especially in loss affected treaties.As a result, UBS is a little more positive on collateralized reinsurance than cat bonds at this time, for its private markets strategy.While the first-quarter of 2025 saw the reinsurance allocation suffer from impacts due to the California wildfires, some improvements have reversed some of that negative impact for UBS’ investments in ILS.

In March, UBS reported that a small portion of the positive gains its collateralized reinsurance fund allocation generated came from a positive revision made to reserves set for the California wildfires.Alongside that, positive returns continued in March from both of the UBS allocations, cat bonds and private ILS.Then in April, positive returns were also experienced, although some seasonal and supply-demand related spread widening in the cat bond space detracted from that managers performance, UBS said.

But, the collateralized reinsurance fund allocation made positive carry in the month and again benefited from a further positive revision to wildfire reserves.Which leads UBS to its conclusion that it remains above neutral for ILS in general, in weighting terms, but more favourable on the private reinsurance fund side..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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