Bermuda: Expect a Crazy Start to 2025 After Another Record Year

Year-on-year, cat bond issuance increased by over $1 billion in 2024 to a new annual high of $17.7 billion, as the extremely active first half of the year and final quarter more than offset a quiet third quarter for the space.

It’s the second consecutive year in which annual cat bond issuance has set a new record, and also another year which saw activity levels swell in the final quarter ahead of the 1 January renewals.

In light of this, we spoke with Adderley about what to expect in the opening months of 2025.

“Clearly, issuance in 2024 has been very impressive and strong. But, is 2025 going to be busy? All I can tell you is that every day we are sending out a quote for a new cat bond. It’s crazy, and it’s showing no sign of slowing down,” said Adderley.

Like any asset class, the catastrophe bond product is in a constant cycle of supply and demand, and changes in the size of deals and the ultimate pricing of cat bond notes in the final quarter of the year shows that both supply and demand for the product remains very solid.

In fact, almost all of the tranches of cat bond notes issued in the period upsized while marketing, while the large majority of notes issued also priced down from the mid-point of initial price guidance, by almost 20% in some instances. This points to strong demand from the investor base, while sponsors in the primary market have benefited from strong execution on deals.

“So, what we’re seeing is a flooding of the market, but as there’s also better investors in the market to buy the product, the issuers can decrease price because everyone is saying please give it to me, please give it to me. And, by doing that, the sponsors keep on saying, I’ll give you a lower quote,” explained Adderley.

“Really, it’s just in a constant cycle. We saw at the start of last year a couple of cat bonds failed to get over the line, and let’s be honest, the prices are never too low. So, again, it’s just a constant cycle between supply and demand. And, let’s not forget that one or two of the largest ILS players in the market now are just cat bond funds, so they must be all over every single transaction,” he added.

As well as a busy pipeline for cat bond issuance, Adderley stressed that the anticipated “crazy” start to 2025 will also be characterised by new life reinsurer formations and sidecars for life, casualty or general business.

“I have enough new formations that will slip into the new year along new structures waiting to be started which will begin in January and submitted soon thereafter,” said Adderley.

“I think that what we’re going to see next year is a lot of new issuances and structures. Then I think you’re going to see some announcements of sidecars, which is great, and some of these could be quite large.

“So, for me, I see as many interesting, complicated, transactional structures in the first two months of 2025. Whether or not March is busy or quiet, we’ll have to wait and see,” he said.

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First Published In Artemis, January 2025