Catastrophe bonds’ attractiveness is waning, as pension funds from the Netherlands, Nordic region and UK have piled into the market over the last 6-12 months, compressing yields, according to Urs Ramseier, chairman at Swiss boutique Twelve Capital.

“With a market size of $20bn (€14.7bn) in cat bonds globally,” he told IPE, “it does not take many large pension funds to affect prices.”

Ramseier said the spread compression on insurance-linked securities (ILS) had been “very pronounced” in recent months, as catastrophe bonds witnessed a “massive decline” in yields.

Over the past 10-15 years, catastrophe bonds have become more or less part of the “standard asset allocation” for Swiss Pensionskassen, with an average exposure of between 1% and 3%, Ramseier said.

“I know one Swiss Pensionskasse that has a 5% exposure, but this is an exception,” he added.

Ramseier said he also saw a new, strong trend towards investments in private insurance debt among Pensionskassen – not least because of Solvency II.

“There are around 5,000 insurers in Europe, and only around 70 of those are big enough to issue bonds to gather money on the capital market – but many of them will need more capital under Solvency II,” he said, adding that banks were pulling out of this segment.

According to him, some insurers will want to replace “expensive equity” with “cheaper debt” capital under the new regulations, which will in turn “create opportunities” for institutional investors.

“Many Pensionskassen are now going back into more illiquid investments to collect on the illiquidity premium – while a year ago they were mostly still very cautious,” Ramseier said.

Twelve Capital began life as an independent boutique in 2010 when it bought Solvency I bonds by insurers at half the price, betting on their having to be repaid as they did not fit into the new legal framework under Solvency II.

Today, the boutique manages $3bn almost exclusively for Pensionskassen and will soon expand from Switzerland to London.

From next year, the company will also offer private equity products investing in the insurance sector, as Ramseier expects Solvency II to lead to a “major restructuring” in the European insurance sector.

He said Solvency II “creates a European market for ILS”, as all insurers now have the same legal framework regarding capital requirements, while before there had been many small markets within Europe.