Bermuda: It’s Impressive How Mainstream Cat Bonds Have Become

After a record-breaking 2023 and first half of 2024 for cat bond issuance, it’s been a subdued third quarter for the space, with issuance driven by private deals and yet another cyber cat bond, with just one 144a property cat bond placed.

That being said, issuance in 2024 has already surpassed the $13 billion mark, which has only happened twice previously, so it’s clearly still going to be a strong year for the
marketplace.

“On the cat bond side, it all seems very positive,” said Adderley. “I don’t think it’s going to be a record fourth-quarter or record year, but honestly, that’s ok. It’s not a sign of doom and gloom at all.”

As of mid-September, explained Adderley, there were a lot fewer quotes for new deals going out than last year, which supports the notion that it’s not going to be a record fourth quarter or year in terms of issuance volume.

“But what I like is that this is more normal. Think back just five years ago, there was still a lot of talk around what’s a cat bond? How can this structure benefit me? But now, there’s consistently new players, bigger deals, returning players, and new risks, just think of all the cyber cat bonds in the market.

“I think that this is just changing normally. For years, it was all new and exciting, but now it’s just a normal thing for a cedent to do. And that’s because of time, because of growth, because of new investors.

“Ultimately, it’s more mainstream, it’s more normal now, and to me, that’s what is impressive. That is the bit I like,” said Adderley.

In addition to the positive outlook for the cat bond sector, Adderley highlighted more movement around sidecars.

“People talking about sidecars in September gives me the impression that they are actually going to happen. It’s not like a last minute, let’s see if I can do something thing, it’s actually more of we’re going to do this, which means there will be sidecars, which is another positive for the market,” he said.

We spoke with Adderley shortly after the annual meeting of the reinsurance industry in Monte Carlo, and while the cat bond discussions he had were positive, he was less impressed with the noise around potential market softening.

“Is seven years of a soft market, seven years of pricing going down and terms going down, offset by one and a half years of, shall we call it better pricing? For my purposes, how can we, as a market, when we hear about investors not wanting to come in and investors needing to see that it’s a viable community and so on, after a year and a half, talk about softening?” questioned Adderley.

“Remember, this market is not driven by losses. It’s driven by people being fed up, inflation and social inflation and everything else. So, how can we, knowing what we just went through, even consider the term softening. I am hoping the strong pricing levels will continue into 2025,” he concluded.

Click here to view the full report.

First Published In Artemis, October 2024