Cat bonds on track for record 2024, as secondary trading hits new high: Swiss Re

After a record-setting first-half to 2024, the catastrophe bond market is on track to break another primary issuance record this year, while the secondary market has already experienced record high trading volumes, according to global reinsurance firm Swiss Re.

The catastrophe bond market growth trend continued in 2024, with the ILS primary market experiencing its most active half year on record, Swiss Re’s latest insurance-linked securities market report states.

The ILS team at Swiss Re recorded US $12.3 billion of primary cat bond issuances across 49 transactions that came to market in the period, which the team notes was “driven by robust investor demand and an excess of capital.”

Jean-Louis Monnier, Head ILS in Swiss Re’s Alternative Capital Partners division, commented on the period under review, “The first half of 2024 has been a period of both challenge and resilience for the global economy and the Insurance-Linked Securities (ILS) market. Inflationary pressures from 2023 have begun to ease, and central banks worldwide have adopted a wide range of monetary policies. The global geopolitical environment remains unstable with key elections in France, the UK, and the US, and ongoing conflicts in Israel and Ukraine.

“In 2024, significant natural catastrophes have occurred, such as several destructive severe convective storms in the US and earthquakes in Japan and Taiwan.

“Despite these events, the cat bond market demonstrated low volatility, with minimal impact observed to outstanding bonds.”

Swiss Re’s report goes on to explain that, “The ILS market remains unaffected due to the perils and geographies covered and the remote structures present in the market.”

Excess capital fuelled the busy period of issuance from March through May in the cat bond market this year, meeting strong demand from a variety of sponsors.

This environment led to high cat bond issuance levels and also some of the largest transactions seen to-date, with three billion-dollar plus primary issues in the period.

Also critical to the catastrophe bond market achieving record-high levels of issuance was a healthy number of new sponsors entering the market for the first time.

Swiss Re counted 9 first-time cat bond sponsors for the first half of 2024, compared to 13 for the full year 2023.

Boosting issuance further was repeat sponsors scaling up their catastrophe bond issues, a driver of the three billion-dollar plus deals as companies looked to capitalise on investor demand and secure more reinsurance protection from the capital markets.

The outstanding cat bond market grew by 7.4% in the first-half, by Swiss Re’s numbers, with fresh inflows of capital to ILS managers helping, alongside maturities and coupon returns, giving ample new capital to support the heavy issuance pipeline.

As the cat bond market expands, secondary market trading has kept pace and 2024 saw a particularly active period, with new records set, Swiss Re explains.

“The secondary market experienced record high trading volumes and spread fluctuations, particularly in industry loss trigger notes,” Jean-Louis Monnier said.

In fact, the reinsurance company notes that each month in Q2 2024 broke the previous record set in March of 2020 for number of trades.

By Swiss Re’s reckoning, April 2024 is now “the most active cat bond secondary trading month in history, based on TRACE reporting data,” the report explains.

Analysing that TRACE data, Swiss Re believes there were 272 secondary cat bond trades in the month of April alone, which is an incredible number and testament to a very healthy and functioning marketplace.

Based on TRACE data, Swiss Re sees May and June as also having had more than 250 secondary cat bond market trades each month.

It cannot be understated how important this is, as the catastrophe bond market continues to grow.

The secondary market provides valuable functionality for ILS managers and investors, enabling them to better manage their portfolios and allocate capital efficiently. Trading volume growth is expected as primary cat bond issuance accelerates and it’s encouraging to see the secondary market reach new heights this year.

On the outlook, Swiss Re is expecting a strong showing for the cat bond market for full-year 2024.

“Entering the traditional market lull, 2024 is on track to break another record in terms of primary issuances barring any disruptive catastrophe event until the primary issuance activity resumes after the wind season,” the company said.

Monnier stated that during the first-half of 2024, “The Swiss Re cat bond indices reflected the ongoing attractiveness of the cat bond market, demonstrating strong returns and indicating sustained investor confidence.”

Concluding, “As we move forward, the ILS market remains an attractive relative value option, offering diversifying opportunities for investors and sponsors alike.”

The Artemis Deal Directory lists all catastrophe bond and related transactions completed since the market was formed in the late 1990’s. The directory also lists the cat bonds waiting to settle, which are highlighted in green at the top of the list.

Analyse the catastrophe bond market using our charts and visualisations, which are kept up-to-date as every new transaction settles.

Download our free quarterly catastrophe bond market reports.

We track catastrophe bond and related ILS issuance data, the most prolific sponsors in the market, most active structuring and bookrunning banks and brokers, which risk modellers feature in cat bonds most frequently, plus much more.

Find all of our charts and data here, or via the Artemis Dashboard which provides a handy one-page view of cat bond market metrics.

All of these charts and visualisations are updated as soon as a new cat bond issuance is completed, or as older issuances mature.