tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, December 6th, 9:36AM

News

rss
Latest Headlines

Super fund invests in catastrophe bonds

The Guardians of New Zealand Superannuation have invested in catastrophe bonds with an initial commitment to the strategy of US$125 million with potential to expand to US$250 million.

Wednesday, February 3rd 2010, 7:41AM 1 Comment

by Jenha White

Catastrophe bonds are a way for capital markets to provide reinsurance to the insurance industry and they essentially cover catastrophic events such as major hurricanes, earthquakes and bushfires in areas where such events present a low but genuine risk.

New Zealand Superannuation head of communications Paul Gregory says New Zealand Superannuation will mostly invest in securities that cover United States hurricanes and earthquakes, with some products covering European wind storms and Japanese earthquakes.

The investment is being managed by Chicago-based Elementum Advisors, LLC who have expertise in insurance linked securities.

“We have invested in catastrophe bonds as they are a strong diversification play and offer attractive risk-adjusted returns.

“We have also invested because risk can be mitigated and capped.” Gregory says for an investor, the rationale is the income stream derived from the premiums paid on the policies in the pool.

The insurance industry values this back-up insurance, and pays attractive premiums to investors to provide it. Should a relevant catastrophe occur, the bond may be triggered.

Triggering depends on the size and severity of the catastrophe and constitutes a requirement to pay out, but the size of the payment is capped to a maximum agreed by the investor.

Eriksen & Associates managing director and actuary Jonathan Eriksen says we like catastrophe bonds for two reasons:

1) The risk is uncorrelated with equity markets and it’s uncorrelated with other asset classes – unless there’s a catastrophe you’re making quite a lot of money.

2) The risk of a catastrophe by its nature is very low but the cost is very high, for example hurricane Katrina where the cost of sorting New Orleans was massive. Therefore the risk premium is high. So in a year where there’s not a major catastrophe the return is very high and of course that’s most years.

Eriksen says usually you write over three types of catastrophe, so you might get one that happens, but it’s unlikely to get three catastrophes happening at once, “so normally it’s a very good investment and it’s ideal for the NZ Superannuation fund”.

“I think it’s a shrewd move because to put it in context, the global financial crisis is not over yet and the equity markets are likely to be the most volatile asset class, but this type of investment carries on regardless.”

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

« Bank adviser pleads guilty to $18m fraud chargesSovereign takes regulation bull by the horns »

Special Offers

Comments from our readers

On 5 February 2010 at 8:29 pm Dr Steven Joynes said:
What a load of bunkum.
"So it normally a very good investment" So when its not normal you lose your shirt do you?
I guess the boys and girls at the NZ Super Fund have to justify their salaries and look at all sorts of products.
This is no different from those people who thought Finance Companies were solid and were an edge against equities.
Why take the risk? - just stick to your knitting and not fall for this financial product manufacturing.
Commenting is closed

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
  • Partners kills its matrix
    “@Backstage, thanks. I agree there is no relationship to CoFI, though, from a service perspective, I have two other providers...”
    2 days ago by JPHale
  • Partners kills its matrix
    “Partners Life has decided to stop using its COM for advisers as it believes the system may breach the CoFI regulations which...”
    3 days ago by Amused
  • Partners kills its matrix
    “Insurance companies should stick to their lane. They are not advisers and even those that employ advisers should not be crossing...”
    3 days ago by Tash
  • [GRTV] The nitty gritty of Smart’s ETFs
    “Advisors should consider all gateways into investment markets including cheaply priced ETFs to provide access to low priced...”
    3 days ago by Pragmatic
  • DRS member or not - client care remains advisers’ responsibility
    “FAPs are members of DRS too. Substitute “adviser” for “FAP” and the story is actually a lot more accurate. If...”
    4 days ago by Aggressively_passive
Subscribe Now

Weekly Wrap

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.94 - - -
AIA - Go Home Loans 7.49 ▼5.79 ▼5.49 ▼5.59
ANZ 7.39 6.39 6.19 6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.79 5.59 5.59
ASB Bank 7.39 ▼5.79 ▼5.49 ▼5.59
ASB Better Homes Top Up - - - 1.00
Avanti Finance ▼7.90 - - -
Basecorp Finance ▼8.35 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.54 - - -
BNZ - Rapid Repay 7.54 - - -
BNZ - Std 7.44 ▼5.79 ▼5.59 5.69
BNZ - TotalMoney 7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.69 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 6.95 5.79 5.59 5.69
Co-operative Bank - Standard 6.95 6.29 6.09 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - ▼5.99 ▼5.89 -
First Credit Union Standard ▼7.69 ▼6.69 ▼6.39 -
Heartland Bank - Online 6.99 ▼5.49 ▼5.39 ▼5.45
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 6.65 6.40 -
ICBC 7.49 ▼5.79 ▼5.59 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.25 6.89 6.59 6.49
Kiwibank - Offset 7.25 - - -
Kiwibank Special 7.25 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 7.94 ▼5.75 ▼5.99 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.49 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 4.94 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.19 6.49 ▼6.39 ▼6.39
TSB Special 7.39 5.69 ▼5.59 ▼5.59
Unity 7.64 ▼5.79 ▼5.55 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society ▼7.70 ▼5.95 ▼5.75 -
Westpac 7.39 6.39 6.09 6.19
Westpac Choices Everyday 7.49 - - -
Westpac Offset 7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 5.79 5.49 5.59
Median 7.49 5.97 5.75 5.69

Last updated: 6 December 2024 9:11am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com