Cat bond issuance could reach $11bn in 2023, if conditions improve: Anger, GC Securities

The global market for catastrophe bonds has the potential for another strong year in 2023, with a robust pipeline building and as much as $11 billion of issuance possible, if market conditions are conducive, according to Cory Anger of GC Securities.

Artemis spoke with Cory Anger, Managing Director at GC Securities, the capital markets and insurance-linked securities (ILS) arm of reinsurance broker Guy Carpenter, to get her outlook for 2023.

Starting with the cat bond market, Anger is particularly bullish and her team sees a significant pipeline of deal flow building, encouragingly featuring many new cat bond sponsors as well.

Anger explained, “We see a strong pipeline of transactions and continued theme from the last two years of additional new sponsors utilizing the cat bond space.

“We currently see over 30 sponsors (including potentially 10 new sponsors) that could utilize the cat bond market in 2023 subject to pricing and other terms/conditions.”

For one-third of new issuance to be coming from new sponsors would be extremely positive for the cat bond market in 2023, demonstrating an increasing adoption of capital markets and ILS securitized sources of reinsurance capital.

Should this all come to pass, which is dependent on how the market develops, Anger is bullish for another strong year.

“We expect total issuance to at least equal 2022’s 144A cat bond issuance of $9.36B or potentially reach $11B if market conditions improve,” she told us.

At this stage, Anger believes 144A cat bonds are the most favoured form of insurance-linked security (ILS) and are likely to remain so for a time.

Inflows are likely to return, Anger said, but this is very much dependent on capital market conditions and competing asset class yields as well.

Discussing the potential for new flows to the cat bond market in 2023, Anger explained, “Investor allocations (particularly the ability to increase allocations) to the 144A product were constrained during 2022. This was primarily due to non-catastrophe loss factors such as currency fluctuations, geopolitical instability, equity and credit markets sell off and increasing global interest rates, among other factors.

“Importantly, as these contributing factors become more stable, we believe allocations back into the catastrophe bond product should resume.”

Hurricane Ian, Anger feels, was not a problematic event for the catastrophe bond market, driving only the losses that would have been anticipated from such a storm.

“Fundamentally the natural peril catastrophe loss experience from 2022 – on a standalone basis – is not problematic for the catastrophe bond market and ILS investors. Hurricane Ian is the exact type of event the market is designed to address,” Anger said.

Adding that, “The fact that actual loss figures for a major Florida event are tending to come down compared to initial expectations, is an exceptionally positive feature for the ILS investment narrative.”

Looking forward, she also explained that the, “Recently passed legislation in Florida may add to investors’ confidence in assuming FL risk in the ILS market going forward.”

All of which is a very positive baseline to begin 2023 on. We’ll bring you more from our interview with Cory Anger in the coming days.

Read all of our interviews with ILS market and reinsurance sector professionals here.