Following a file 12 months for disaster bond issuance in 2024, the cat bond market stays robust, and based on analysts at RBC Capital Markets, it ought to proceed to stay a essential a part of corporations’ danger administration instruments, alongside reinsurance purchases.
Analysts additionally highlighted that investor demand for cat bonds stays robust, pushed by a rising observe file of strong returns and the power to face up to main disaster occasions with minimal impairments.
Wanting again, full-year catastrophe bond and related insurance-linked securities (ILS) issuance hit a record $17.7 billion in 2024 as fourth-quarter issuance of $4.5 billion greater than offset a quiet third-quarter, which in the end took the excellent market to a brand new excessive of $49.5 billion.
Commenting on 2024’s file disaster bond issuance, RBC Capital Markets mentioned: “With 2023 already a file 12 months within the cat bond/ILS market, we have been questioning if the momentum might proceed in 2024. The reply was sure after which some.
“We predict that the cat bond market has been profitable in attracting new capital (and repeat buyers), which is feeding the market demand.”
Including: “We’d observe that it has been an energetic few cat years for the P&C business with Swiss Re not too long ago noting that international disaster losses amounted to $144 billion in 2024 vs. $125 billion in 2023.
“Final 12 months represented the fifth straight 12 months of worldwide cat losses above the $100 billion threshold. That mentioned, cat bonds are severity sort devices and the actual danger within the potential lack of principal to cat bond buyers is when mega cat occasions occur. Traders don’t appear to be scared off by giant international cat tallies annually and till there are main impairments to precise cat bonds we don’t see that occuring.”
Addressing the explanations behind this strong new disaster bond issuance that’s being seen throughout the ILS market, analysts famous that returns on cat bonds have been strong all through the previous few years, which is often a tailwind for future new issuances.
“We proceed to assume that demand is excessive for loss mitigation associated to cat occasions and shopping for reinsurance or issuing cat bonds are two methods to perform that goal,” they added.
Commenting on the current Los Angeles, California wildfires, RBC Capital Markets defined that it doesn’t assume that the wildfires are going to cease robust new issuance movement, even when there are some impairments of layers.
Analysts additionally commented on the present state of the cat bond market as we speak, explaining, “We predict that there’s the enchantment of cat bonds being non correlated property that present some stage of defensiveness from what is going on within the international financial system.
“We will recall a number of years in the past questioning if cat bonds would exit of favor if total rates of interest transfer rather a lot greater. The query has been answered so far as we’re involved.”
Transferring in the direction of cyber cat bonds, which since their introduction to the market in 2023, the business has now seen 10 cyber cat bonds develop, analysts highlighted how cyber will be thought of a disaster due it being able to producing giant losses throughout the business, if a sure occasion comes alongside.
Wanting again finally 12 months’s CrowdStrike international IT outage occasion, we reported shortly following the incident that the occasion didn’t transfer cyber cat bond secondary market costs, but it surely did nonetheless increase questions on cyber loss accumulation and aggregation dangers, and highlighted some uncertainties over precisely what cyber cat bonds cowl.
Moreover, analysts famous that plenty of cat bonds on the life and well being aspect have developed throughout the market lately, indicating that that is one other potential space that might develop over time.
Commenting on their outlook for the disaster bond market in 2025, RBC Capital Markets mentioned, “We proceed to imagine that the cat bond market has legs and may keep a essential a part of corporations’ danger administration instruments balanced alongside a reinsurance shopping for technique.
Concluding: “Investor urge for food for cat bonds hasn’t pale, in our view, as there may be now an extended observe file of first rate returns and making it by means of mega cat occasions with little in the best way of impairments. Whereas it’s powerful to know if 2025 will set new data (once more) within the cat bond market, this 12 months is off to a strong begin with the Artemis database indicating $1.9 billion in new cat bond issuance YTD through 2/6/25).”
