Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Positive cat bond market momentum will continue: Klugman, Swiss Re


There is “no doubt” that the positive momentum witnessed in the catastrophe bond market over recent years will continue, according to Judy Klugman at Swiss Re, who anticipates another strong year for the market in 2022.

swiss-re-building-logo-newThe latest insurance-linked securities (ILS) market report from reinsurance firm Swiss Re tells a story of a growing catastrophe bond market, with increasing numbers of new entrants.

New sponsors coming to market with their first catastrophe bonds is always noteworthy, as it signals continued market expansion.

First-time cat bond sponsors tend to become repeat sponsors and in many cases they adopt a layering approach, of bringing catastrophe bond risk capital more deeply into their insurance and reinsurance towers, taking advantage of the multi-year tenure and ability to issue cat bonds annually, or every few years, to build on the capital markets participation within their programs.

That’s what was seen in 2021, with some ten new cat bond sponsors identified by Swiss Re, while it’s clear many of the other sponsors of note that came to market during the record year of issuance were building on their use of cat bonds, layering additional protection from the capital markets into their risk and reinsurance towers.

Swiss Re’s report details $12.8 billion of catastrophe bond issuance for 2021, a little behind our figure of a record $14 billion of issuance in 2021, but we include a billion dollars of private cat bonds and some more non-cat deals in our data.

Ed Johnson, Head ILS Sales EMEA & APAC at Swiss Re commented, “This milestone was achieved in spite of a challenging year of catastrophe losses and with most market participants working from home.

“The ILS market continues to demonstrate its resilience with bonds issued in every month of last year apart from August and almost USD 13 billion of total new issuance for the calendar year.”

In the report the reinsurance firm also details market expansion, with the outstanding market hitting a new high of $33.8 billion, according to its figures.

There was no real change to the diversification on offer in the catastrophe bond market though, with a mix of roughly 35% US wind, with multi-peril and earthquake featuring as the next largest classes of peril.

Year-on year, issuance broke the annual record by 13% in 2021, on Swiss Re’s numbers.

With the outstanding market also increasing in size again, Swiss Re puts the Compound Annual Growth Rate (CAGR) of the catastrophe bond market at 9.4% since 2012, which is impressive.

Commenting on the record year of cat bond issuance, Judy Klugman, Head ILS Sales at Swiss Re said, “It’s no surprise that the ILS market once again continued to break records in 2021. We have seen continuously increasing demand over the past decade, with the cat bond market growing at close to 10% per annum.”

Johnson explained some of the highlights of a busy year for the cat bond market in 2021.

“Most encouraging was the number of new sponsors and ESG developments in the asset class. Notable new sponsors this past year included the Government of Jamaica, California insurer Farmers and Dutch insurer NN. Swiss Re was proud to bring each of these sponsors to market, introducing a breadth of new risks to investors and encouraging growth,” he explained.

Johnson highlighted the increasing importance of environmental, social and governance (ESG) for the catastrophe bond market, with ESG criteria increasingly being followed by those in the insurance-linked securities market.

Johnson said, “We are also pleased to see that it has become more common for ILS bonds to include ESG disclosures. We believe is is the start of a very positive journey for the growth of the asset class.”

Given the strength of the catastrophe bond market in 2021 and the fact it importantly continues to attract new sponsors, it’s encouraging to see a key player like Swiss Re so positive about the cat bond market’s future as well.

Klugman added, “There is no doubt that this positive momentum will continue in 2022 and beyond, as the sector provides true value both to sponsors and investors alike.”

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