According to Swiss Re Capital Markets, the insurance-linked securities (ILS) market continued the growth trend of recent years throughout 2024, as the last twelve months were marked by a “robust performance” for cat bond investors in the absence of events large enough to have a significant impact on the market.
In a new report, the investment banking and insurance-linked securities division of global reinsurance firm Swiss Re explained that the ILS market has grown by 10.5% year-on-year, and is on track to exceed USD 50 billion of notional outstanding in the near future.The reinsurer’s Capital Markets division also stated that a strong issuance pipeline contributed to the growth of the market, despite a large volume of bonds maturing, as a “very active” second and fourth quarter ultimately helped the year reach USD 17.2 billion of primary issuance.
“Although the risk profile of the market remains orientated towards US perils, Swiss Re Capital Markets (“SRCM”) observed a wide variety of risks offered this year with a broad range of covered areas, a further ceding of cyber risks to the market and even a new peril, terrorism, on behalf of the French State pool GAREAT,” the firm explained.
At the same time, the Swiss Re Cat Bond Total Return Index posted a solid performance in 2024 with an annual return of 17.3%, which is just slightly down from 2023’s 19.7%.
According to the reinsurer, this was driven by a high level of demand from the investor base alongside relatively benign loss experience in the catastrophe bond market.
The firm also addressed how the ILS market remains dominated by US perils, and 2024 appeared to be no different, with close to 60% of primary issuances having more than 90% expected loss contribution from US wind on a modelled basis.
However, in 2024, bonds exposed to perils outside of the peak zone of the contiguous United States totalled USD 1.75 billion, which included issuances from new sponsors, such as the Government of Puerto Rico, Talanx, and GAREAT, as well as returning sponsors from various areas including Japan windstorm and earthquake, Italy earthquake, Europe windstorm, Mexico windstorm and earthquake and Jamaica windstorm, Swiss Re explained.
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Furthermore, while 2024 was one of the most active calendar years the industry has ever seen in terms of insured losses from cat events across the globe, Swiss Re noted that losses were spread among a relatively high number of medium severity events as well as secondary perils, such as wildfires, thunderstorms, hailstorms and floods.
“In general, most ILS instruments are designed to cover peak perils and trigger after very high severity events such as major earthquakes and hurricanes. However, events from previous years have continued to develop, and the ILS market has supported the industry with close to USD 440 million of recovery payments to sponsors recorded in 2024 related to those past events,” Swiss Re concluded.
