Catastrophe bond insurance reaches record value of $11bn

By William Girling
New research from Artemis has found that catastrophe (cat) bond issuance in 2020 reached US$11bn, an all-time record...

New research from Artemis has found that catastrophe (cat) bond issuance in 2020 reached US$11bn, an all-time record.

Coming soon after Swiss Re’s December assessment of global insurance losses due to natural disasters, which reached $76bn (a 40% year-on-year increase), it is, perhaps, unsurprising that a year market by economic, political and social strife on a global scale should set such a precedent. 

In addition to the aforementioned $11bn in pure property cat bonds, Artemis also recorded $761m of health and life bonds, $351m private cat bonds, and $4.3bn mortgage insurance-linked securities (ILS). 

2020: A landmark year

Defined as a “a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster,” cat bonds provide issuers with funding in the event that certain, pre-negotiated conditions are met.

Despite initially struggling at the onset of COVID-19, the company reports that the cat bond and ILS market soon rebounded. Subsequently, it managed to achieve consistent performance and recorded a particularly strong Q4 of $6bn. 

"2020 was a landmark year," stated Steve Evans, Owner and Editor of Artemis. “"I've never seen such high-levels of issuance activity in the almost 25 years I've been tracking the development of ILS. This is testament to the resilience of the ILS market and its participants, as well as the utility of catastrophe bonds as a vehicle for transferring risk to the capital markets.”

A busy year ahead

With Martin Bertogg, Head of Cat Perils at Swiss Re, projecting that hurricane activity in the 2021 Western hemisphere will increase, the continual growth of the cat bond market seems a likely prospect:

”Large-scale climate conditions in the North Atlantic suggest elevated hurricane activity for 2021 and likely beyond. This increases the probability of a catastrophic landfall. Combined with the loss impact of secondary perils accelerated by climate change, insured catastrophe losses will only rise in the future.”

Evans is in agreement, stating, “All the signs point to another busy year for catastrophe bonds and ILS as risk transfer structures, as sponsors increasingly look to the global capital markets as an efficient source of insurance protection."

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