Nonlife cat bond issuance on record pace: Fitch

This year should set a highwater mark for the issuance of nonlife catastrophe bonds, Fitch Ratings Inc. said Friday.

“We expect YTD 2024 cat bond issuance of $13 billion,” across 75 issuance “… to surpass 2023’s record issuance of $16 billion,” across 95 deals, Fitch said.

The ratings agency noted, however, that “…with nearly $48 billion outstanding, cat bonds represent less than 10% of the total reinsurance market.”

This record issuance of insurance-linked securities is expected to continue as insurers and reinsurers continue to turn to capital markets, using catastrophe bonds to manage risks amid a firm reinsurance cycle.

This will in turn provide ILS investors with superior total returns, diversification to other assets and a lower risk profile, Fitch said.

Costs have risen with the market and increased activity.

“Similar to the traditional reinsurance market, prices to issue bonds have risen meaningfully,” Fitch said. “Sponsors also face higher administrative, legal and bookrunning expenses.”

Fortunately, most bonds do not appear to have taken substantial hits from the recent one-two punch of hurricanes Helene and Milton.

“It does not appear Helene (Fitch estimates insured losses of $5 billion to $10 billion) and Milton (estimated losses $20 billion to $40 billion) will cause significant principal losses to cat bond investors,” even though insured losses for 2024 have already exceeded $100 billion, Fitch said.

This is at least partly due to insurers and reinsurers and cat bonds have generally increasing attachment points on cat bonds as well as “a slight rotation to per occurrence versus aggregate triggers and terms and conditions,” Fitch said.