Catastrophe bond market breaks all records in 2020

The catastrophe bond market saw record issuance in 2020, as the securitization of insurance or reinsurance risks and transfer of them to capital market investors saw an explosion of activity, despite uncertainty caused by the global pandemic.

Catastrophe bond issuance in 2020 reached a record-high, as the market saw over $11 billion of pure property cat bonds issued for the first time, according to a new report from Artemis.bm.

Adding to this issuance, $761 million of cat bonds supporting specialty, life, or health insurance risks were issued and recorded by Artemis during the year, as well as almost $351 million of private catastrophe bonds, and just over $4.3 billion of mortgage insurance-linked securities (ILS).

The catastrophe bond market emerged in the mid-1990’s as a way for insurers and reinsurers to transfer risk to new sources of capital and Artemis.bm has been recording and analysing issuance of cat bonds and other insurance-linked securities (ILS) ever since.

Now, with more than 700 cat bonds listed in the Artemis Deal Directory, the most extensive source of information on insurance-linked securities (ILS) and catastrophe bonds available, 2020 has not just seen record dollar-values issued, but also a record number of transactions as well.

With over 80 individual catastrophe bond and related insurance-linked security (ILS) transactions listed in our Directory in 2020, this beat the previous record of 68 transactions recorded in 2018.

Contributing to this total were ten brand new market entrants, as the range of insurance, reinsurance and corporate sponsors of catastrophe bonds expanded in 2020.

2020’s active year of catastrophe bond issuance is even more impressive when the backdrop of the COVID-19 pandemic is considered.

After an initial pause in issuance, when the pandemic struck earlier in the year, the catastrophe bond and insurance-linked securities (ILS) market bounced back quickly, with consecutive quarters of strong issuance and a record fourth-quarter to end 2020, as detailed in the new report.

“2020 was a landmark year for the catastrophe bond market and for insurance-linked securities (ILS) funds and their investors,” Steve Evans, Owner and Editor of Artemis.bm commented.

“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,” Evans continued.

ILS fund managers have demonstrated their ability to trade through challenging times and offer continuity to those seeking risk capital, even as their businesses transitioned to remote working.

“ILS investors have equally shown their ability to provide continuity of capital and demonstrated their desire for the relatively uncorrelated returns available from insurance related risks, which is very important for the future of this marketplace,” Evans further explained.

Looking ahead to 2021, Evans expects another busy year for the catastrophe bond market.

“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,” Evans concluded.

Read details of fourth-quarter and full-year 2020 catastrophe bond and related ILS issuance in Artemis.bm’s new report.

About Lisa Baker, Editor 261 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.