King Ridge Capital Insights & Research

A $65 billion market, three consecutive years of double-digit returns, and a correlation to stocks and bonds close to zero — catastrophe bonds may be a potentially useful diversification tool most allocators have never used.

Why Catastrophe Bond ETFs Reprice Without Deleveraging

Periods of market stress are often accompanied by a wave of selling driven not by fundamentals, but by balance-sheet constraints, funding pressures, and forced deleveraging. As a result, there is a natural presumption that catastrophe bonds — particularly in ETF form — will behave like high-yield credit during periods of macro stress, experiencing indiscriminate selling and liquidity breakdowns. This paper argues that such a presumption is analytically and structurally misplaced when evaluated through the mechanics of catastrophe bond markets.

A Plain-English Guide for Investors New to This Asset Class

Learn the fundamentals of catastrophe bonds, including how they work, their potential risks and benefits, and the role they can play in a diversified investment portfolio.

Private Credit and BDCs May Reinforce Rather Than Diversify Credit Exposure

Over the past decade, private credit has evolved from a relatively specialized strategy into a central allocation within many institutional portfolios. Pension funds, endowments, insurers, and family offices have increasingly embraced the asset class as a way to generate income in an environment where traditional fixed income often struggled to provide attractive yields.

How Catastrophe Bonds Are Helping Redefine Portfolio Resilience

The 60/40 portfolio, long regarded as the cornerstone of institutional and retail asset allocation, has come under increased scrutiny in recent years. Instances of simultaneous equity and bond drawdowns, driven by inflation shocks and fiscal uncertainty, have raised questions about its future viability. 

Fixed income securities have long been a foundational building block of conservative investment strategies, providing stability and predictability. In recent years, consistently low bond yields, combined with escalating inflation and interest rates, along with increasing correlations with equities, have sparked concerns about bonds' capacity to effectively diversify portfolios and reduce risk.

Insurance-Linked Securities (ILS) represent an important and growing alternative asset class with diversifying and income-oriented returns. Its low correlation to traditional equities and fixed income embeds resiliency in portfolios during periods of financial market stress. In this Q&A, Rick Pagnani and Vijay Manghnani, the founders of specialty ILS manager King Ridge Capital Advisors, provide further background on how ILS can add an important source of returns to most investors with multi-asset portfolios.

Hurricane Helene developed on September 22, 2024 as a low-pressure system in the western Caribbean. Strengthening as it approached the Yucatán Peninsula, it reached tropical storm status on September 24 and intensified into a Category 4 hurricane by September 26 while moving through the Gulf of Mexico. Helene made landfall near Perry, Florida (see Figure 1), with winds of 140 mph, causing severe storm surge in Tampa Bay - the highest in over 80 years, marking it as the strongest storm to hit Florida's Big Bend since 1851.

In this series on CAT bonds, we’ve explored how this asset class has demonstrated resilience through dynamic shifts in 2023 and steady returns through 2024. In Part 1, we covered the historical performance and stability of CAT bonds, and Part 2 focused on the return drivers supporting robust market activity.

In 2023, catastrophe bonds (CAT bonds) proved to be a standout performer among alternative asset classes, riding a wave of strong returns and market resilience. As we move through 2024, many investors are eager to see whether these trends will hold, especially after a spring marked by unexpected shifts in yield spreads.

Catastrophe bonds play an important role in enabling disaster recovery and adaptation. They protect societal risk aggregators such as, insurance firms, sovereign entities and large corporations, from large financial losses due to severe catastrophe events, such as hurricanes, earthquakes and floods etc. These bonds are a key type of a growing class of insurance-linked securities (ILS).