Catastrophe bond market grows to record $45.6bn
The catastrophe bond market grew nearly 18 per cent year-on-year to a record $45.6 billion, a new report by Aon Securities has revealed.
In the 18th edition of its ILS Annual Report, the company said: “The past 12 months can be characterised as a year of records for the catastrophe bond market: record breaking issuance for three of the past four quarters, including the largest-ever first half issuance volume for a calendar year, resulting in over $12.2 billion of new transactions coming to market.
“Cumulatively, the 12 months beginning July 2023 to June 2024 ended with issuance volume totalling over $17.9 billion across 76 transactions.
“Record issuance was supported by overwhelming growth of the cat bond market. With nearly $11 billion of maturities over the same 12 months, the market required over $6.9 billion of growth to sustain the issuance volume over this period.”
Bermuda is among the leading ILS jurisdictions, and the Bermuda Stock Exchange is the global listing leader.
The period also saw the arrival of the first 144A cyber catastrophe bond.
Aon Securities brought it to market on behalf of Bermudian-based Axis Capital, Long Walk Reinsurance Ltd 2024-1.
The report said: “All told, five cyber catastrophe bonds were issued in the past year, totalling $575 million in issuance. While cyber risk accounts for just over 1 per cent of the outstanding risk in the market, the development of a structure which supports the cession of systemic cyber risk to ILS investors represents a monumental feat, many years in the making.
“Further, the structure sets the foundation from which sponsors can build on to bring more cyber risk to market, further diversifying investors’ portfolios.”
Aon said a record-breaking 64 sponsors came to market during this 12-month period, 20 more than the prior year.
The report said: “Apart from cat bonds, the new issue sidecar market continued its own re-emergence as investors supported property portfolios similar to past cycles as well as innovative casualty structures.
“New issuance combined with the strong returns from sidecars already outstanding to push total outstanding sidecar volume to a new estimated record of $10 billion compared to $7.1 billion in 2023. This record surpasses the previous peak of outstanding volume: $8.4 billion set in 2015.
“Growth of the sidecar market was facilitated by the return of past ILS investors who waited out the soft market cycle and new investors attracted by heightened returns.”
It added: “Higher potential returns in property sidecars have been driven by historically elevated premium rates, more remote attachment levels for underlying treaties, and narrowed coverage definitions.
“Importantly, the property sidecar cycle is being driven not only by reinsurance portfolios but also insurance portfolios. Insurers are looking to sidecars as a source of proportional reinsurance to address the increased earnings volatility from higher excess of loss retentions.”
Aon said the diversity of risk ceded to the market has also been notable.
“In the past 12 months, 14 sponsors brought transactions to market for the first time ever. Several other sponsors returned to the market after over a decade of absence issuing cat bonds, including Chubb, who came to market at the end of November with a cyber cat bond offering, The Hartford and Beazley.
“As a result, ILS investors now have cat bond portfolios with more commercial risk and a more geographically diverse footprint.”
• For the full report, see “Related Media”
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