1 21. April 2020

CAT BONDS

„CAT Bonds as Stabilizer“

Webinar 21. April 2020

Dr. Karsten Bromann, Solidum Partners

Stefan Müller, Solidum Partners

Harald Steinbichler, axessum

PLEASE NOTE THE RISK WARNING AT THE END OF THE PRESENTATION

2 21. April 2020

Investment Markets in 2020

Asset class Return Q1 2020

Government Bonds 2.81%

Cat Bond Universe -0.10%

US Inv. Grade Corporate

Bonds-2.81%

US High Yield Corporate

Bonds-8.49%

US Equities -20.10%

3 21. April 2020

Cat Bond Market 2020

COVID19: Textbook example of the low correlation of CAT Bonds to other markets

− The significant restrictions in economic activity caused by the Corona crisis led to massive slumps in many

investment segments. In this phase of great uncertainty and volatility, cat bonds were once again able to prove their

positive qualities as a stabilising element in an investment portfolio:

− they fulfil the promised diversification characteristics;

− they resist the distortions on the financial markets;

− as they have a truly independent source of default risk, their correlation in stress scenarios does not tend

towards 1, as is once again the case today with high yield and other alternative fixed income investments;

− Due to their characteristics as relative short maturities with a high-quality collateral, they are protected against

massive devaluations during a liquidity squeeze.

− Even though pandemic bonds are affected by defaults, the corona outbreak is primarily a liquidity event for the cat

bond market. Cat Bonds react to changes in supply and demand. However, a drastic devaluation, similar to that of

structured finance securitisations during the Lehman crisis or currently that of equities, is prevented due to their

characteristics as relative short maturity paper with a high-quality collateral. Currently, the stable performance of cat

bonds relative to the significant losses elsewhere results in an overallocation in some investor portfolios. Some

investors therefore need to make reallocations, and an oversupply in the secondary market leads to price

markdowns. This is further reinforced by liquidity-driven selling activities.

− Swiss Re Cat Bond Price Index in March (USD, non investable, without cost): - 2.36%

These discounts are NOT associated with increased risk and therefore represent an attractive entry

opportunity.

4 21. April 2020

COVID 19 Briefing

https://catbond.com/en/2020/02/27/the-2019-2020-coronavirus-outbreak-and-

implications-for-the-ils-market/

5 21. April 2020

Review: ILS market in the years 2017 to 2019

2017 was an exceptionally expensive year for the

reinsurance industryHurricanes Harvey, Irma and Maria, bush fires in California,

earthquakes in Mexico and many severe tornado events and

winter storms in the USA cost the insurance industry USD 140

billion and led to the default of many cat bonds and reinsurance

contracts.

As a result, ILS funds suffered more or less pronounced losses.

2018 and 2019 were average years in terms of total losses

− Accumulation of moderate events, but no catastrophic individual losses.

− Hurricanes Florence and Michael, Typhoons Trami and Jebi (2018) and Faxai and Hagibis (2019), bush fires in California,

bad weather in Italy and other events led to the loss some individual policies and cat bonds.

− Often aggregating contracts and sidecar structures were affected.

− Late claims development, especially from Hurricane Irma and Typhoon Jebi, delayed losses to subsequent years,

especially for many sidecar investments.

− As a result, the Eurekahedge ILS Advisers Index lost -3.5% in 2018 and gained a weak 1.4% in 2019. The Eurekahedge

Index can serve as a proxy of the overall offering of all ILS funds in the market.

− A general spread widening in the cat bond market exerted additional pressure on prices in 2019, but improved the

earnings potential 'going forward'.

6 21. April 2020

Solidum Funds in 2019 & Q1 / 2020

2019 Q12020

Solidum ELS SAC 3 (I-1) 8.22% 0.27%

Solidum ELS SAC 2 (I-1) 4.36% -0.76%

Solidum Cat Bond Fund 5.10% -1.61%

Solidum - Falcon Insurance Linked Strategy (I-USD) 5.47% 2.00% Solidum is manager since August 2019

Solidum - Falcon Insurance Opportunities (I-USD) 4.64% -0.69% Solidum is manager since August 2019

Eurekahedge ILS Advisers Index 1.43% 0.21%

Swiss Re Cat Bond Performance Index 4.43% -0.10% (without cost, non-investable)

USD class returns (technical currency classes of the funds); EUR and CHF returns are lower by the interest rate differential against the USD.

Historical returns are not indicative of future returns or current or future trends

95

100

105

110

Okt Dez Feb Apr Jun Aug Okt Dez Feb Apr

Solidum ELS - SAC Fund 3

Solidum ELS - SAC Fund 2

Solidum Cat Bond Fund

Solidum-Falcon ILS (I-USD)

Solidum-Falcon IOF (I-USD)

Swiss Re Cat Bond Performance Index

Eurekahedge ILS Advisers Index

7 21. April 2020

2019 2018

Solidum ELS SAC 3 (I-1) 8.22% 10.88%

Solidum ELS SAC 2 (I-1) 4.36% 4.83%

Solidum Cat Bond Fund 5.10% 4.13%

Solidum - Falcon Insurance Linked Strategy (I-USD) 5.47% 2.53% Solidum is manager since August 2019

Solidum - Falcon Insurance Opportunities (I-USD) 4.64% 2.94% Solidum is manager since August 2019

Eurekahedge ILS Advisers Index 1.43% -3.49%

Swiss Re Cat Bond Performance Index 4.43% 2.81% (without cost, non-investable)

Solidum Funds 2018 – 2019

USD class returns (technical currency classes of the funds); EUR and CHF returns are lower by the interest rate differential against the USD.

Historical returns are not indicative of future returns or current or future trends

949698

100102104106108110112114116118120122

Okt Dez Feb Apr Jun Aug Okt Dez Feb Apr Jun Aug Okt Dez Feb Apr Jun

Ertragsentwicklung 2018 -2019

Solidum ELS - SAC Fund 3 Solidum ELS - SAC Fund 2 Solidum Cat Bond Fund

Solidum-Falcon ILS (I-USD) Solidum-Falcon IOF (I-USD) Swiss Re Cat Bond Performance Index

Eurekahedge ILS Advisers Index

Performance 2018 - 2019

8 21. April 2020

Success Criteria - Solidum Philosophy

Successful security selection

- Experience and Know-How of the team

- Portfolio size allows to say NO to suboptimal CAT Bond offers

Regarding reinsurance and retrocession investments

- No aggregated retrocession contracts: Solidum offers only traditional retrocession contracts

with «per occurrence» trigger and reinstatement

- None sidecar investments

- No ‘yield-Chasing’ with retrocession and insurance contracts

- Carefully selection of counterparties

Solidum's setup allows more “quality analysis time” per million invested

9 21. April 2020

Cat Bond Market 2020

Outlook 2020:

− The long awaited premium increase becomes visible in the cat bond market

− The late-loss problem from the years 2017 & 2018 has been resolved for the vast majority of cat bonds;

however, there are few for which we believe there is still a risk of total loss

Development of earnings potential (cat bond market) 2018 to 2020:

Liquidity-driven spread widening in the cat bond market due to the corona crisis is currently

increasing the earnings potential without additional risk

1) Based on mid-spreads over money market according to AON prices (29.12.2017, 31.12.2018, 31.12.2019); weighted with nominal capital of the bonds; exclusion of all "pathological" cases and

bonds expiring during the year (seasonal effects)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

01.01.2018 01.01.2019 01.01.2020

Spread over Money Market

Expected Loss

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

01.01.2018 01.01.2019 01.01.2020

Spread over Money Market

Expected Loss

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

01.01.2018 01.01.2019 01.01.2020

Spread over Money Market

Expected Loss

US Wind and Multi-Peril Diversifizierende Bonds Gesamtmarkt

Spread over Money Market of CAT Bond Market1)

10 21. April 2020

Solidum ILS Funds – Positive influence on an investment portfolio

Market neutral Fixed Income /High Yield Investment

- No duration risk

- Marginal counterparty risk

- Low correlation with other asset classes

Attractive risk adjusted spread over money market

- Peak risks in reinsurance represent a systematic risk for this industry

and therefore require significant risk premiums. ILS investors can

collect these excess premiums, with ILS also serving as an ideal

diversifier in the portfolio

Source: Swiss Re - Insurance-Linked Securities market update, Volume XXXI, September 2019

PPCmetrics AG - Impact of the coronavirus pandemic on asset managers, April 2020

PPCmetrics: «Highly Affected

Markets»

11 21. April 2020

Sales Partner of Falcon Fund Management

Managing Partner

axessum GmbH

Anton Krieger Gasse 130 Top 1

1230 Vienna

Austria

Tel. +43 1 888 60 69

Mobile +43 664 851 64 42

harald.steinbichler@axessum.com

www.axessum.com

Harald Steinbichler, Member of the Board Falcon Fund Management (Luxembourg)

12 21. April 2020

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The information contained in this presentation is of a general nature and is intended for general information and

marketing purposes only. This presentation is intended exclusively for institutional clients. The information contained in

this presentation does not constitute an offer or recommendation to make or sell an investment or to carry out any

other transactions, nor does it constitute legal or tax advice and therefore cannot be used as a basis for individual

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Risk Note