The European Fund and Asset Management Association (EFAMA) has strongly advised European Union policymakers to retain the existing status of catastrophe bonds within the UCITS Eligible Assets Directive (EAD). EFAMA characterizes these bonds as a vital tool for portfolio diversification, asserting that any curtailment of asset selection within UCITS would ultimately harm investor interests. This stance comes as a direct response to earlier recommendations from the European Securities and Markets Authority (ESMA) suggesting a more restrictive approach to cat bond eligibility.
EFAMA Urges Prudence in Catastrophe Bond Eligibility Debate
On November 4th, 2026, the European Fund and Asset Management Association (EFAMA), a prominent voice representing the European investment management sector, issued a comprehensive paper. This document directly addresses the European Securities and Markets Authority's (ESMA) technical advice regarding the inclusion of catastrophe bonds within the Undertakings for Collective Investment in Transferable Securities (UCITS) framework. In June 2025, ESMA had proposed that catastrophe bonds might be better suited under an alternative investment fund (AIF) wrapper, suggesting they should only qualify within a 10% alternative asset limit for UCITS funds. EFAMA, however, passionately argues for the preservation of their current status, highlighting their unique benefits. Federico Cupelli, EFAMA's Deputy Director of Regulatory Policy, underscored the substantial diversification advantages and robust secondary market for catastrophe bonds. Dan Irwin-Brown, EFAMA's Director of Market Insights, Data & Analytics, further emphasized that these bonds provide valuable diversification due to their exposure to insurance-related risks, which operate independently of traditional financial market drivers. Currently, UCITS catastrophe bond funds manage an impressive nearly $21.8 billion in assets as of September 2026, underscoring their significant role in the insurance-linked securities (ILS) investment landscape. EFAMA cautions that any material changes to the UCITS EAD could lead to significant disruptions, potentially necessitating reallocations, conversions, or even the closure of existing funds, thereby undermining the market's ability to mobilize crucial capital for disaster risk transfer globally.
From a market perspective, EFAMA's intervention is a timely and critical contribution to the ongoing debate. The association effectively articulates the dual benefits of catastrophe bonds: their value as a portfolio diversifier for investors and their societal contribution to bridging the insurance protection gap. The data presented by EFAMA, particularly the low correlation of cat bonds with major asset classes and their active secondary market liquidity, provides a compelling argument against restrictive policy changes. It serves as a reminder that regulatory decisions, while aiming for investor protection, must also consider the broader implications for market functionality, innovation, and societal welfare. Preserving the accessibility of catastrophe bonds within UCITS not only supports investor choice and portfolio resilience but also ensures that vital capital continues to flow into mechanisms that mitigate the financial impact of natural disasters worldwide.
