Catastrophe Bond Market Achieves New Annual Record

The catastrophe bond market saw a record level of activity in 2021, a new report from Artemis.bm explains, as demand for insurance and reinsurance from the capital markets continued to increase, while investor interest in the cat bond asset class grew to support deal sponsor appetite to transfer risk.

Over $12.5 billion of property catastrophe bonds were issued in 2021 (a record amount), along with another $470 million of cat bonds covering other insurance business lines and more than $1 billion of private cat bonds, driving the market to a new record annual total of $14 billion for the year.

Some twenty-five years since Artemis.bm tracked the issuance of the first broadly syndicated catastrophe bond, the company's extensive Deal Directory now provides information on more than 800 catastrophe bonds and other securitizations of insurance or reinsurance risk to its users.

Over the course of 2021, at $14 billion, catastrophe bond issuance has beaten the previous annual record set in 2020 by almost $2 billion, or 15%.

2021 also witnessed more catastrophe bond market activity than any other, with a record 84 cat bond transactions sold to investors across the year, plus another 14 mortgage insurance-linked securities (ILS) transactions that were analysed by Artemis.bm coming to market.

The past year also witnessed some landmark transactions, including a catastrophe bond for Jamaica that was brought to market with the assistance of the World Bank, as well as a third catastrophe bond sponsored by tech giant Google, plus several innovative cat bond transactions that helped corporate sponsors to access insurance from the capital markets for harder to place natural catastrophe risks.

By the end of 2021, the amount of risk capital outstanding from property catastrophe bonds, cat bonds covering other business lines, and private cat bonds, had reached a new record high, growing 8% or over $2.5 billion, to almost $36 billion in size by year-end, according to Artemis.bm's data.

"2021 has been another year of strong issuance and market growth in the global catastrophe bond sector," Steve Evans, Owner and Editor of Artemis.bm commented.

"While natural catastrophe losses continued to challenge the wider insurance and reinsurance market, the cat bond fund segment of insurance-linked securities (ILS) has performed admirably under this pressure, resulting in growing investor interest in the catastrophe bond asset class and driving inflows to fund managers in the space.

"ILS investment managers and their third-party institutional investors have demonstrated their continued resilience and growing appetites for access to insurance or reinsurance-linked returns through a fully securitized asset in 2021, which bodes well for further cat bond market expansion in 2022," Evans said.

One important signal for the catastrophe bond market is the emergence of new and first-time sponsors of cat bonds, symbolising growing acceptance of the securitization structure and the capital markets as a source of disaster insurance or reinsurance capacity.

"In 2021 we recorded transactions from 12 new and first-time catastrophe bond sponsors which bodes well for further market growth in 2022.

"At Artemis we're positive on prospects for ILS and cat bond markets in 2022, as the investor-base continues to offer a valuable alternative source of insurance and reinsurance capacity to an expanding sponsor-base," Evans concluded.