Cat bond issuance on pace for a record year: Lara Mowery, Guy Carpenter

Despite somewhat of an easing at the mid-year reinsurance renewals, insurance-linked securities (ILS) activity has been robust so far in 2024, and knowing what the rest of the year looks like right now, catastrophe bond issuance is on pace to set a new record, according to Lara Mowery, Head of Distribution, Guy Carpenter.

After a record first and second quarter of cat bond issuance and the completion of the mid-year renewals, Artemis spoke with Mowery about ILS activity for the rest of the year as investors in the space increasingly look to engage with the re/insurance sector.

“We have seen a very robust catastrophe bond market,” said Mowery. “Looking at ILS activity through 2024, Q2 set a record for the quarter, and we are on pace to have a record year in 2024.”

As investors in the ILS space were looking at the shifting dynamics in the property catastrophe segment in 2023, as pricing and structures were evolving, there’s been a lot of discussion and speculation around the lack of a Class of 2024 or incoming Class of 2025 of new capital coming in.

But as noted by Mowery, reinsurance broker Guy Carpenter saw a robust engagement from capital, with traditional reinsurers having more capital at the end of 2023.

“Going into 2024, the Guy Carpenter reinsurer composite index added about $35 billion of new capital by the end of 2023, that then was available to be deployed for product and capacity in 2024,” said Mowery.

“ILS investors are also looking at ways to engage in the space, and one of the ways that is probably one of the easier to engage is through cat bonds, because it’s a product that ILS investors are familiar with.

“They tend to have more liquidity than a traditional reinsurance product, and they’re a very well defined and understood risk box. The perils that are included are named. So, it’s a more specifically defined coverage. They appeal to ILS investors for those reasons, and that’s where we saw more of the ILS money come in, in order to engage in the catastrophe space,” she added.

Nevertheless, continued Mowery, there was somewhat of an easing of ILS capital at the mid-year renewals, and a few players didn’t have mid-year ILS capital available in necessarily quite the way they were planning.

“For products that were focused on utilizing ILS capital, we did see a little bit of an impact there at mid-year. Things like the movement in cat bond pricing, where that came back more closely in line with traditional property catastrophe pricing, where it had taken a dip earlier in the year.

“We’re not seeing that pricing move outside of a range that would be interesting for buyers to look at. It’s worth exploring traditional property catastrophe coverage or catastrophe bonds and may depend on what the characteristics of the deal are, which product might be a better fit. So, certainly still worth looking at,” explained Mowery.

For other products, such as reinstatement protection covers that are more common in the Florida market, for example, and which tend to have a heavier component of ILS-backed capacity, Mowery highlighted as an area where there was evidence of constraint at June 1st, driven by that slight dip in capacity.

“But, to be fair, we still had plenty of capacity. Buyers were able to buy what it was that they were looking for to a large extent,” said Mowery.

It’s important to remember that all of this is in the midst of the market seeing some significant increase in demand for protection.

“All of the pent up demand that didn’t come through going into 2023, has started now to come through in 2024. We’re in the process of doing an analysis around exactly where that’s ending up, but based on our preliminary review, it wasn’t just a handful of marquee deals that were grabbing the headlines where people were buying more.

“The majority of Guy Carpenter’s US property cat portfolio, as an example, purchased more limit, and in many cases, those were smaller amounts. So, there were a number of buyers who looked at $50 million, or less, of new capacity, but there were a lot of those,” she said.

Given the strong increase in demand and knowing what’s in the pipeline and what the rest of the year looks like right now, Mowery reiterated that the cat bond market is on pace for a record year.

“It is an interesting solution for buyers to have access to as part of their evaluation of what’s out there and available to meet their risk management needs. It’s always beneficial to have a bouquet of options and choice when you’re looking at what the best avenue is to manage your risk,” she concluded.

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