2024 marked a new issuance record for the catastrophe bond market, overall capital in play reached new heights, transaction sizes also went up, and cyber cat bonds took off.

The big reinsurance brokers’ 1/1 renewals reports are primarily focused on the traditional reinsurance market, rather than insurance linked securities (ILS). But by necessity they always take note of it, even if it is usually further down the page of editorials written in the days to follow.

Strong returns are driving further ILS growth, Aon observed, ending 2024 “on an all-time high”. The chart accompanying this blog, taken from reinsurance broker Guy Carpenter, illustrates the state of the catastrophe bond market, showing new issuance as well as overall capital in play.

This significant growth rate for a market which has existed for over a quarter century indicates ceding companies see growing value in complementing their overall reinsurance and retrocession purchases with cat bonds, Aon noted.

Benefitting from “relatively benign global catastrophe losses”, the market reached another milestone last year, Aon said, with more than 100 different cat bond ceding entities.

The cat bond product has become a key building block of many reinsurance programmes. And any conversation about reinsurance capital and pricing dynamics has to refer to the alternative capital route, which has flourished and continues to grow.

Traditionally the ILS market has at its core the Bermuda staple 144A rule catastrophe bonds. Activity in 144A cat bonds was robust at year’s end, with 67 different cat bonds brought to the market, Guy Carpenter observed, for approximately $17bn in limit placed in 2024.

However, even the property cat focus has broadened in recent months, as the cat bond market has expanded – after much discussion in recent years – to transfer a significant amount of cyber cat underwriting risk to the ILS investment community.

Pricing and appetite

Catastrophe bonds continue to be the ILS product of choice, due to where they transact at the higher layers of specific named perils, and providing liquidity provided to investors, according to Howden’s 1/1 report.

Average transaction sizes increased to $262m at the end of 2024 from $218m a year earlier, catapulting new issuance in 2024 to $17.5bn, which, Howden remarked, “marks a new issuance record since the market’s inception”.

Cat bond pricing peaked in June ahead of what was forecasted to be an active hurricane season, only for strong investor appetite and some $3.8bn of bonds maturing in the second half of the year, to put pressure on rates, which Howden said were down in the “double-digit percentage range” towards the end of the year. Despite this, rates remain attractive enough for both sponsors and investors, the broker suggested.

Investor confidence was also boosted by the negligible impact of hurricanes Helen and Milton on the cat bond market. Secondary spreads widened in the low single-digit-range at the time of their landfall, “but no material principal reduction was recorded”, Howden noted.

Cyber cat bonds

Gallagher Re’s 1/1 review emphasised cyber cat bonds as “a big growth area”, which the reinsurance broker took credit as “instrumental in building out”. By the end of last year, more than 60% of the cyber rule 144 cat bonds were placed by Gallagher Securities, the broker’s ILS arm.

The market for cyber cat bonds has gone from zero a couple of years ago to six outstanding cyber cat bonds worth $785m from four different sponsors last year, with additional sponsors looking to support cyber catastrophe bonds in future, according to Gallagher.

Cyber events such as the CrowdStrike outage in July did not bring market losses, with no resulting erosion of investor confidence. The need to expand investor participation is critical to market development, the broker suggested, with demand also growing, taking credit for investor education and marketing the product more widely.

Vibrant outlook

Beyond property, Aon highlighted innovative structures encompassing casualty, specialty (including cyber) and whole account portfolios were successfully introduced to the market, expanding risk transfer options for 2025.

Aon Securities said it anticipates “a vibrant ILS market with significant deal flow in early 2025”, with a significant pipeline of maturing capacity for the first half of the year, and investors willingness to deploy increased cash positions.

Short-term risk of price volatility persists, and further spread tightening is possible, Aon acknowledged, citing supply and demand dynamics, but investors can also redeem some cumulative earnings from the market, the broker suggested.

For 2025, Aon said it anticipates strong demand from cedents matched with “an abundance of deal activity” from cat bonds as well as sidecar vehicles set up for investors to pledge capacity alongside traditional reinsurers’ own capacity.

Sources

1.1 Reinsurance Renewals 2025: Winds of Change – A Shifting Landscape

The Growing Cyber Threat: Understanding Your Exposures

Join Us for London Market Cyber Networking Event, 13th March 2025

ILS sets new records and breaking new ground through cyber cat bonds

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