FRANKFURT (Reuters) – A surge of new capital from investors like pension funds into the market for specialized insurance risks could threaten financial systems and needs to be closely watched, the European Union insurance watchdog EIOPA said on Thursday.
Low interest rates on traditional bonds have encouraged pension and hedge funds to pour money into insurance-linked securities (ILS) like catastrophe bonds and other securitized insurance investments to obtain higher yields and diversify away from financial market risks.
Catastrophe bonds are used by the insurance industry to transfer financial risks of extreme events like earthquakes or hurricanes to investors, who receive an annual return in exchange for agreeing to cover damages they consider very unlikely.
Recommended For You
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
