Bermuda continues to lead ILS sector
The island and the Bermuda Stock Exchange grow along with the industry.
Bermuda is holding its place as one of the leading domiciles for insurance-linked securities in 2024, as the sector continued to set new growth records.
The Bermuda Stock Exchange also retained its role as the dominant exchange for ILS listings.
According to a report issued by ratings agency AM Best reproduced in this magazine (see Page 42), the catastrophe bond market, which remains the largest and best-known segment, benefited from two years in which it did not incur any material losses while investors continued to pile in.
Bloomberg News reported that catastrophe bonds continued to pay out more than many fixed-income assets. Investors earned returns of 16%, compared with a record 20% in 2023, it said.
A separate index, the Plenum Cat Bond UCITS Fund Index, said 2024 returns were 13.6%, down slightly from the record 14.88% recorded in 2023.
Cat bond issuance also rose to a record $17.7 billion in 2024, which brought capacity to a new high of $49.5 billion at the end of the year. Ninety-three deals were done, marginally fewer than 2023’s 95, according to ILS specialist website Artemis.
The market showed no sign of slowing down in 2025 – issuance was at $9.3 billion as of May 7, bringing capacity through the $50 billion barrier.
One great selling point of the ILS market has been its non-correlation to the broader bond market and to investment markets generally.
That was proven following the announcement of the Trump administration’s global tariffs on April 2. While almost all the world’s investment markets were thrown into turmoil, catastrophe bonds remained remarkably stable.
The Plenum CAT Bond UCITS Fund Index had risen to 130.38 by April 25, having started the year at 129.03.
Bloomberg reported said a note to investors in mid-April from Plenum said cat bonds “are currently impressively demonstrating their stabilising effect in portfolios — just as they did during the financial crisis, the Covid shock and the interest-rate turmoil of 2022”.
It added: “As long as no trigger event occurs, investors can continue to expect attractive returns.”
Expectations that the market would continue to grow have been confirmed so far.
The AM Best report noted that the strong returns in the cat bond market could whet the appetite of investors for other forms of ILS, including in sidecars, where capacity increased and ranged from an estimated $8 billion to $10 billion.
“Rate increases in the primary business underlying these quota share arrangements have made this ILS segment more attractive,” the report said.
However, industry loss warranty (ILW) capacity was roughly flat, in the $5 billion to $7 billion range, with the size of the segment dependent on overall supply and demand dynamics in the retrocession market.
Hopes were higher for collateralised reinsurance, estimated to be in the $45 billion to $50 billion range, with ILS managers hoping for growth in this segment following two solid years of investor returns. Spread compression in the cat bond market could also make private ILS deals more attractive to investors, AM Best said.
At the same time, the BSX continued its dominance of the listings market and had an estimated 92% of the market at the end of 2024, according to Artemis.
By the end of March 2025, 718 listed securities represented $56.5 billion in capacity, compared to $55.9 billion at the end of 2024 and 773 listings representing $52 billion worth of securities in 2022. By April 2025, there were 718 securities valued at $55 billion.
While the number of listed securities declined, this was due to the expiry of several mortgage insurance linked securities. In 2025, the number of catastrophe bonds rose from 450 in 2024 to 461 in March this year and the value of the bonds rose from around $46 million to $47.7 billion.
While growth remains strong for ILS, it remains to be seen whether the sector can attract wider investor interest. “Institutional investors, particularly pension funds, are generally hesitant about allocating further in this asset class due to lingering structural limitations,” Scott Cobon, Artex Capital Solutions’ managing director, said in a report late last year.
In a company report, Artex said the hard market which started in 2023 meant that balance sheet reinsurers were generating surplus capacity which needed to be redeployed, and some of that was going into catastrophe bonds.
“One key theme that emerged from the Monte Carlo Rendez-Vous in September was Bermuda reinsurers’ determination to maintain discipline,” Artex said. “While the ILS market in Bermuda had a successful year in 2023, the sector is focused on building a sustainable market that will convince investors of its ability to generate consistent returns over the longer term.”
The report said portfolio managers had shown their willingness to adapt and move toward sustainability on attachment points and terms and conditions, but some investors remained reluctant to increase their share of the market.
“Institutional investors are the most hesitant, likely due to losses incurred over the last seven years, exhibiting reluctance to invest further or expand existing investments until they are convinced that recent market changes represent a true reset.
“This market is undergoing a reset. We don’t expect terms and conditions to soften, and while there might be some softening of pricing, I believe there’s a strong commitment to maintaining discipline around a sustainable overall return on risk.” – Artex Capital Solutions CEO Kathleen Faries
“However, institutional investors’ willingness to find solutions for addressing structural risks is an indication that their involvement is entering a new phase, where they are seeking to evolve how they deploy capital.”
Artex noted that the catastrophe bond space continued to see “exceptional growth” while there was growing interest in sidecar and MGA arrangements.
“Several entities are working on efficient ways to secure casualty,” the company said. “The need for accurate, real-time data to give investors comfort around casualty risk and duration is challenged by the industry’s typical cycle of quarterly reporting.
“Private quota share transactions and ILW capacity also proving attractive to investors, demonstrating the growing overall interest in the ILS market as a source of diverse investment options for investors seeking diversification and access to different insurance market segments.”
Artex Capital Solutions CEO Katheleen Faries added: “This market is underdoing a reset. We don’t expect terms and conditions to soften, and while there might be some softening of pricing, I believe there’s a strong commitment to maintaining discipline around a sustainable overall return on risk.”
Different strokes
While catastrophe bonds continued to enjoy solid growth in 2024 and into 2025, other segments of the ILS universe also continued to develop.
AM Best noted that the cyber cat bonds pioneered by Beazley in 2023 continued to evolve, with two more iterations of its Polestar Re bonds (Series 2024-2, 2024-3) for a total of $370 million, bringing the outstanding size of the 144A cyber cat bond market to nearly $800 million at year-end 2024. Beazley also obtained $290 million of coverage via a cyber ILW.
“The outstanding cyber cat bonds appear to have emerged unscathed from the CrowdStrike incident, which serves as a useful point of discussion to home in on precisely which exposures are covered and, in this case, to what extent accidental, non-malicious cyber incidents are covered,” the report said.
“With improved modelling and understanding of potential cyber loss scenarios, further deals are expected, and the cyber catastrophe bond market is expected to grow in 2025 and beyond.”
The casualty market also saw growth in 2024 as the market found solutions to deal with the problem of long-tail risk and trapped capital.
Two companies which have been active in the segment are Aspen Insurance, which has built a large third-party capital segment largely based on casualty insurance and reinsurance and Multistrat Re, whose CEO Bob Forness predicted the market could double in size in the next two years from its estimated $3 billion to $4 billion.
Another segment within catastrophe bonds which is growing are bonds that offer parametric triggers, which grew to capacity of $1.4 billion in 2024 from $600 million in 2023. The triggers are popular with government cedents who may have a difficult time securing aggregate cover, AM Best said.
“Government cedents are the most notable sponsors of parametric 144A cat bonds, typically through the World Bank,” AM Best added. “The government cedents especially like the speed of payout to put money to work on recovery efforts quickly.”
For more news on Bermuda Risk Review 2025, click here.
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