Cat bond market increases to record $45.6bn

The catastrophe bond market increased 18% to a record $45.6 billion at the end of June, while the broader insurance linked securities market reached a total volume of $110 billion, Aon Securities has reported. 

Aon, in its annual ILS report, said record catastrophe bond issuance was achieved in three of the last four quarters, with a record 64 issuing entities bringing 76 catastrophe bond transactions to market over the 12 months, comprising repeat sponsors and new issuers, and structures covering broader geographies and perils. 

Bermuda is a leading market for insurance-linked securities and the Bermuda Stock Exchange is the leading exchange for ILS listings. 

Aon said the introduction of cyber risk to the sector – five cyber catastrophe bonds totalling $575 million were brought to market over the period – set the foundation for further growth in the ILS market. Beyond cyber, investors benefited from more geographically diverse portfolios, and a wider array of risk types, such as commercial and specialty risk.

It said additional capital seeking wider risk margins was met with unprecedented demand for ILS capacity from insurers, reinsurers, corporates and governments, as buyers contended with higher pricing across the traditional insurance and reinsurance markets.

“The past 12 months can be characterised as a year of records, and the growth of the ILS market comes at a time when risk transfer needs are at their greatest," said Richard Pennay, CEO of ILS for Aon." Inflation, evolving weather trends, and ambitious moves to close the protection gap have all driven demands for greater insurance and reinsurance capacity. 

"Aon is supporting its clients in accessing record volumes of ILS capital, helping shape better risk transfer decisions while navigating volatility, building resilience, and pursuing profitable growth opportunities.” 

Sidecar volume also increased to a new estimated record of $10 billion over the 12 months, compared to $7.1 billion during the prior year period. This record surpassed the previous peak of outstanding volume of $8.4 billion in 2015. Growth of the sidecar market was facilitated by the return of past ILS investors attracted by heightened returns.

The report noted that there had been growth in property and casualty sidecars, with casualty developing due to higher interest rates, improved casualty insurance pricing and substantial risk spreads. 

ILS growth has also been driven by increased involvement by government and multi-national sponsors, with $5.8 billion of issuance volume being ceded by government entities, including the California Earthquake Authority, Citizens and the Texas Windstorm Association. The percentage of the market taken by government issues increased to 32% of sponsors in 2023-2024 compared to an average of 29% between 2018 and 2023. 

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