After a record 2023, the insurance-linked securities (ILS) market again set records in the first half of 2024, with strong catastrophe bond issuance on the back of robust demand from investors, as the secondary market experienced record high trading volumes, according to reinsurance giant Swiss Re.
The latest ILS Market Insights report from Swiss Re discusses the more than $12.3 billion of primary issuance across 49 cat bond transactions in the opening six months of 2024.
Strong demand from the expanding investor base coupled with an excess of capital drove the high levels of issuance, and the second quarter of 2024 actually became the highest primary issuance quarter on record.
According to Swiss Re’s figures, nine new sponsors entered the cat bond market in the first half of 2024, building on the 13 first time sponsors witnessed in 2023.
Interest among the existing investor base was also strong in the period and some scaled up their issuances, with three cat bonds issued in the period having a size of $1 billion or more, including Citizens Property Insurance’s Everglades Re II Ltd. (Series 2024-1) transaction, State Farm’s Merna Re II Ltd. (Series 2024), and Alamo Re Ltd. (Series 2024-1) from the Texas Windstorm Insurance Association.
Catastrophe activity remained heightened in the first half of this year, with Swiss Re recently pegging insured losses at $60 billion, driven by severe convective storms in the US, and earthquakes in Japan and Taiwan. But despite another period of above-average losses for the re/insurance sector, Swiss Re notes that the cat bond market remained resilient, with minimal impact observed to outstanding bonds.
H1’24 was also an active period for the secondary cat bond market, with the reinsurer highlighting record trading volumes and spread fluctuations. In fact, according to Swiss Re, April 2024 was the most active cat bond secondary trading month in history, based on TRACE reporting data.
In 2023, the Swiss Re Global Cat Bond Total Return Index saw a record return of 19.7%, and the index posted a return of 4.6% during Q1’24. In the second quarter, the index plateaued as a result of the rebalancing of cash availability, and despite benign loss activity, pressure on secondary market prices led to a negative mark-to-market impact. However, Swiss Re explains that this was offset by coupon payments, leading to a further return of 1.2% for the quarter, and a return of 5.8% for the first half of the year.
“The Swiss Re cat bond indices reflected the ongoing attractiveness of the cat bond market, demonstrating strong returns and indicating sustained investor confidence. As we move forward, the ILS market remains an attractive relative value option, offering diversifying opportunities for investors and sponsors alike,” says Swiss Re.
