Cat bond sponsors have recovered 2.69% on a paid loss basis: Swiss Re

Over the history of the catastrophe bond market, sponsors have recovered some 2.69% on a paid loss basis, which on a reported loss basis would have seen recoveries of 3%, according to Swiss Re Capital Markets.

The investment banking and insurance-linked securities (ILS) specialist unit of global reinsurance giant Swiss Re highlighted these reinsurance recovery trends for the cat bond market in a recent report.

Over the course of last year there were a number of recoveries made under catastrophe bonds, but these were mainly driven by catastrophe losses that occurred in prior years, in particular hurricane Ian, Swiss Re Capital Markets explained.

“Not many major catastrophe events that took place in 2023 significantly impacted the cat bond market. Hurricane Otis, which made landfall on the Pacific coast of Mexico, is being monitored for loss potential. The Kahramanmaras earthquakes in Turkey and Syria did not cause any cat bond losses on their own but contributed to losses on some global multi-peril bonds that covered Turkey earthquake,” Swiss Re Capital Markets said.

Adding that, “The main driver of losses on these bonds was Hurricane Ian, with an additional contribution from Winter Storm Elliot, both in 2022.

“The vast majority of cat bond recoveries to sponsors in 2023 were from events in previous years.”

Most of these catastrophe bond losses are detailed in our extensive directory of cat bond losses, cat bonds facing losses and those seen as particularly at-risk.

Swiss Re Capital Markets analysed the recovery rate for catastrophe bond sponsors over the history of the cat bond market, from 1997 to 2023.

Swiss Re Capital Markets explained, “The cumulative recovery rate from 1997 to the end of 2023 was 3.0% on a reported loss basis and 2.69% on a paid loss basis. The recovery rate is defined as either cumulative losses reported to bondholders (or losses paid by bondholders) divided by cumulative notional issued.”

The capital markets unit of the global reinsurance firm pointed out that reported losses could still change if indemnity cat bond sponsors revised their loss estimates up or down at all, including incurred but not reported losses, or IBNR, or if industry loss estimates for index-based cat bonds were to show further development.

“This has already been seen with Hurricane Ian, as a few sponsors have recently increased their reserves, while industry estimates have fallen slightly over the year,” Swiss Re Capital Markets said.

View details of catastrophe bond recoveries in our directory of cat bonds facing losses or at-risk of loss.