Record $15bn+ cat bond issuance in 2023 helps stabilise reinsurance: Swiss Re

With 2023 on-track to set a new record high for catastrophe bond issuance of over $15 billion, global reinsurer Swiss Re has explained how investor appetite is driving this trend and that the capital flows are helping to stabilise the reinsurance market.

However, Swiss Re also believes that the rotation in insurance-linked securities (ILS) will continue, with the catastrophe bond market set to benefit as the collateralised reinsurance side of the market continues to shrink.

As we recently reported, annual global catastrophe bond and related insurance-linked securities (ILS) issuance was officially on-track to breach $14 billion for the first time ever in 2023, while traditional 144A property cat bond issuance was also on-track to reach a new record high.

New cat bonds have been launched in addition to those numbers, taking the expected totals higher and Swiss Re highlights that $15 billion plus is now in reach.

Artemis’ data now shows that full-year 2023 issuance of cat bonds and related ILS will reach $16.4 billion, as the deal sizes stand today.

We also forecast (based on the latest deal-sizes) $15.7 billion of 2023 issuance across 144A cat bonds (property cat and other business lines), so taking private cat bonds out of the above, with $14.92 billion of 144A property cat bonds only.

So a record year by any measure and the above numbers could rise, with more deals still able to upsize if investor demand allows.

Swiss Re’s Institute team explained, “Record-high catastrophe bond issuance in 2023 is a sign of attractive conditions for investors as well as the growing demand for transfer of peak risks such as large natural catastrophes.

“The USD 15 billion new cat bond issuance will not tilt the supply-demand balance in the global reinsurance market significantly in our view, since alternative capital for reinsurance has been flat overall since 2017 and the retrocession market remains tight.”

However, the Swiss Re Institute also said, “Strong cat bond issuance is complementing and stabilising the traditional (re)insurance markets.”

But Swiss Re anticipates the shift in investor allocations, towards cat bonds and away from other collateralised reinsurance structures and funds will continue.

“We expect investor capital to continue to favour cat bonds as they offer exposure to peak risk layers, where the risk-return profile currently is attractive and liquidity can be provided in the secondary market,” the company explained.

Adding, “We expect the market dichotomy in AC to persist in 2024, with the cat bond market expanding further and collateralised reinsurance declining.”

Overall, Swiss Re believes the catastrophe bond market will continue to expand with growing need for catastrophe risk capacity.

Saying, “Solid growth in cat bonds is needed to maintain their role of providing capacity for peak risks and therefore freeing up traditional reinsurance capacity for lower layers.”

That traditional reinsurance capacity will compete with collateralised reinsurance, it seems, while cat bonds could take a greater share of top-layer risks in reinsurance.

Encouragingly for 2024 and beyond, Swiss Re also said, “We think current hard pricing is not primarily driven by a capital crunch but rather a significant step-up in the cost of capital and elevated economic and model uncertainties; all factors that will continue next year.”

A positive outlook for the catastrophe bond market, but also positive for the successful collateralised reinsurance strategies in the marketplace, as well as potential new entrants, especially if they can keep cost-of-capital down.

Stay tuned to Artemis as we move through the final weeks of the year for details of each cat bond as it prices and settles, as well as news on any new cat bonds that come to light, which could raise these forecasts for year-end totals even higher.

The Artemis Deal Directory lists all catastrophe bond and related transactions completed since the market’s first deal 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.

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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.