Cat bond momentum a positive influence on wider ILS space: Brad Adderley, Appleby

A record breaking year for the catastrophe bond and related insurance-linked securities (ILS) market and continued momentum in early 2024 is having a positive influence on the wider ILS market, according to Brad Adderley, Bermuda Managing Partner, Appleby.

Artemis spoke with Adderley ahead of the launch of our Q4 and full year 2023 cat bond and related ILS report, which dissects the record $16.4 billion in annual issuance from a record 95 transactions.

“I didn’t expect this year (2023) to be as busy as it has been, it’s been crazy. I’m not sure anyone thought there was going to be more than 90 deals this year. So, personally, I’m surprised by both the number of deals and the size of total issuance,” said Adderley.

Given just how large issuance volume was in 2023, it’s no surprise that it was also a record year for the issuance of 144A property cat bonds, which at roughly $15 billion accounts for 84% of total 2023 issuance.

At the same time, mortgage ILS issuance made somewhat of a return while deal volume for cat bond lites and non-catastrophe risks was robust. Most notable, though, was the arrival of the first cyber risk deals, which first appeared as private placements before a flurry of full 144A cyber cat bonds appeared in the final quarter.

Together, the three private deals from Beazley and the firm’s 144A cyber cat bond, along with 144A issuances from AXIS, Swiss Re, and Chubb, bought almost $500 million of cyber risk to capital markets investors.

“I’m also pleasantly surprised about cyber,” said Adderley. “Over the years, we’ve heard many rumours about new risks, but how often did it actually happen? The fact numerous cyber deals have been issued now is only a good thing for the market. And now that cyber has taken off, it shows that it is possible and perhaps people will start looking more seriously at other risk. Developments like the cyber deals, that’s what we need, right. We need something different being done to cat in order to really grow the market.”

So far this year, a mix of traditional 144A deals and private placements have taken Q1 issuance to $414 million, but as shown by the Artemis Deal Directory, there’s currently another $600 million of new issuance scheduled to close before February, which would make it the third most active January, in terms of risk capital issued, of the past decade.

“It suggests that this is not a flash in the pan. Ok, 2024 might not be a record year after what we’ve seen in 2023, but if it’s still a really good year, a busy year, it still builds on the momentum.

“Add to this the fact I’m still reading and hearing more and more about sidecars and collateralized products, it’s a bit like a snowball effect. The cat bond market is pulling other things into it, which is allowing the entire fully funded space to grow. Which is what we want. So, I think next year (2024) is going to be really good for the market,” concluded Adderley.

All of our catastrophe bond market charts and visualisations are up-to-date, so include this latest quarter of issuance data.

We will keep you updated on all catastrophe bond and related ILS transaction issuance as 2024 progresses, and we’ll report on the evolving trends in the cat bond, ILS and collateralised reinsurance market.

For full details of fourth-quarter 2023 cat bond and related ILS issuance, including a breakdown of deal flow by factors such as perils, triggers, expected loss, and pricing, as well as analysis of the issuance trends seen by month and year.