Expect a Busy Year-End for Cat Bonds and Sidecars

After a record-breaking first six months for the catastrophe bond market, issuance has slowed in the third quarter, which is typically the least active period for the sector.

In the final quarter of the year, however, issuance levels tend to pick up ahead of the January renewals, and when you consider the current re/insurance market landscape, it looks set to be a busy year-end for the space.

“I think you’re going to see a big year-end for cat bonds. I wouldn’t be surprised if it turns out to be the best year ever for issuance. Importantly, we’ve seen some new risk and new sponsors as well, who are learning and could return in the future,” said Adderley.

Interestingly, Adderley told Artemis that there also appears to be a surge in sidecar activity on the property and casualty (P&C) side.

“There haven’t really been that many sidecars over the past five years or so, and we currently have several clients taking this approach,” said Adderley.

“So, I think you’re going to see some sidecars before year-end, either existing or new, which is only going to contribute to the busy year-end for the insurance-linked securities (ILS) market,” he added.

Adderley explained that even when it’s been a very soft market, end of September to end of December has always been busy. But with the market remaining hard, all signs point to a very busy year-end, and Adderley is bullish for a number of reasons.

“I would argue it’s probably the biggest dislocation in the marketplace. We know that players have pulled out, we know people aren’t really raising capital. You don’t read about new ILS funds or massive raising of existing funds. We know the pricing is high, we know there’s inflation, and we know there’s climate change and more risk.

“So, all of that together, you’ve got to figure that people will be looking to do opportunistic deals, because someone is going to take the risk,” said Adderley.

As well as a solid cat bond and sidecar pipeline, Adderley suggested that some of the new commercial reinsurers that have been rumoured could also get off the ground before the end of the year.

“But look, if they do, and I hope that they do, they’re not likely to be market leaders, to set or affect pricing, so it doesn’t really adversely impact existing players,” he said.

“So, with this renewal season fast approaching and what has happened, and with the extremely active cat bond market, and with the sidecars and potential new start-ups, next year is going to be really interesting as well. Will the momentum continue? That is the big question on people’s mind,” concluded Adderley.

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First Published In Artemis, October 2023