Swiss Re and GAM: A New Era in Catastrophe Bonds

In the ever-evolving landscape of financial markets, the partnership between Swiss Re and GAM marks a significant milestone in the world of catastrophe bonds and insurance-linked securities (ILS). Effective from May 7, 2025, Swiss Re, through its subsidiary Swiss Re Insurance-Linked Investment Advisors Corporation (SRILIAC), will co-manage GAM's ILS fund range, including the GAM Star Cat Bond UCITS Fund. This strategic alliance brings together two industry giants, each with a rich history and unparalleled expertise in their respective domains.

Swiss Re, a pioneer in the catastrophe bond market since the 1990s, has arranged transactions with a notional value of approximately USD 50 billion. This accounts for more than a quarter of the notional value of all cat bonds issued since 1997. With over 50 dedicated scientists working in catastrophe risk and 190 proprietary peril models, Swiss Re's extensive risk knowledge and underwriting expertise will significantly enhance the investment strategies for GAM's catastrophe bond and ILS funds.

The partnership is not just about numbers; it's about leveraging decades of experience and innovation. Swiss Re's role as a leading sponsor of cat bonds and sidecars, combined with its ability to arrange complex transactions, positions it as a formidable player in the ILS market. GAM, on the other hand, brings a robust infrastructure, a global distribution network, and a strong client service framework, fostering deep and long-standing relationships with investors.

One of the key benefits of this partnership is the enhanced diversification opportunities it offers to investors. Cat bonds, which provide financial protection against potential losses from natural catastrophes or other perils, allow investors to access an asset class whose returns have low correlation with other financial markets. This diversification value is crucial in an era of increasing market volatility and uncertainty.

However, the partnership is not without its challenges. The transition from Fermat Capital Management, which has been a long-standing co-manager of GAM's cat bond fund, could introduce short-term uncertainty. Fermat's own UCITS fund grew to more than USD 750 million by the end of 2024, suggesting that investors may have to weigh the benefits of the new partnership against the proven track record of Fermat.

Another challenge is the complexity of new and emerging risks. While diversification into cyber, terrorism, and mortality risks is beneficial, these newer perils lack historical loss data. This could expose investors to unforeseen volatility, as the performance of these bonds during actual events remains untested.

Despite these challenges, the partnership between Swiss Re and GAM represents a significant step forward in the ILS market. The combination of Swiss Re's risk management expertise and GAM's distribution and product structuring strengths positions the partnership as a leader in the growing ILS market. As Mariagiovanna Guatteri, CEO and CIO of SRILIAC, noted, "The ILS market set new records in 2024, and strong returns on cat bonds have highlighted the attractiveness and diversification value of the asset class for investors."

In conclusion, the partnership between Swiss Re and GAM is a testament to the evolving nature of the financial markets. It represents a strategic alliance that leverages the strengths of two industry giants to offer investors enhanced diversification opportunities and robust risk management. While there are challenges to be addressed, the potential benefits of this partnership are significant, and it is poised to shape the future of the ILS market. As the market continues to grow, driven by increased demand for risk transfer and the concentration of insured values in exposed areas, the partnership between Swiss Re and GAM is well-positioned to capitalize on these trends and deliver value to investors.