The insurance-linked securities (ILS) market delivered another very strong performance in the first half of 2023 with new issuance breaking records in the period, Swiss Re has revealed, who has also predicted a record-breaking full-year in both the size and number of newly issued bonds.
According to Swiss Re’s latest ILS Market Insights Report, following Hurricane Ian at the end of the third quarter of 2022, “questions were raised whether capacity could be met in the alternative capital sphere.”
This, analysts explain, led to a dislocated ILS market in the beginning of 2023; at the same time, investors globally saw an opportunity and successfully raised money.
The reinsurer notes that with nearly $9.85 billion issued, the new issue market during the first six months of 2023 broke records for absolute notional and number of deals.
The report also revealed that in the first half of 2023, sponsors found the cat bond market as a great alternative but an even better complement to a hardening traditional re/insurance market.
“Even when comparing to historical annual issuance, H1 2023 has been notable. Already, more has been issued than in all of 2022. The first six months of this year alone resulted in 2023 being the fourth highest year for new issuance,” said Swiss Re.
According to the report, this flurry of primary market activity was not just due to repeat sponsors. There were six unique first-time sponsors that entered the market in the period, bringing risks to the market ranging from US wind to New Zealand earthquake.
Additionally, the Swiss Re Global Cat Bond Total Return Index joined the primary market in realising a record-breaking six months, returning 10.34% from the beginning of 2023.
Hurricane Ian and the Turkey-Syria earthquake were the main events that impacted, minimally, the market in H1 2023. Analysts noted that, when compared to Q4 2022, the ILS markets have been relatively stable over the first half of 2023.
Hurricane Ian was originally expected to be a massive event for the catastrophe bond market resulting in many different bonds taking losses; however, this has not been the case.
Swiss Re analysts said: “SRCM has observed some loss creep from original estimates issued by cedants of cat bonds but this creep has not been significant enough to result in large losses to the bonds.
“In fact, there have been minimal losses to indemnity bonds due to Hurricane Ian. There have been small losses to index-linked cat bonds, yet even these losses are well below original loss estimates before Hurricane Ian made landfall.”
The Turkey-Syria earthquakes, formed by two large shocks of MW 7.8 and MW 7.6 paired with a third of MW 6.5 have become known as the Kahramanmaras Earthquake Sequence (KES).
This event caused insured losses of around $5 billion with estimates from PERILS ~$4.9 billion, Swiss Re ~$5.3 billion, and RMS >$5 billion.
In total, the KES combined with Hurricane Ian, Winter Storm Elliot, and a series of EU storms in early 2022 resulted in some bonds with worldwide aggregate covers suffering losses during 1H 2023.
According to the report, during H1 2023, Swiss Re Capital Partners (SRCM) has observed the primary market stabilising following Hurricane Ian and the ensuing capacity constraints.
“We expect this trend to continue into the 2023 Atlantic Hurricane season. Barring any events, we believe there is a strong chance that 2023 will be a record-breaking year in both the size and number of new issue bonds,” analysts stated.
Adding: “In tandem with the primary market, we have seen spreads tightening notably in the secondary market due to new inflows coupled with a high level of maturities. SRCM expects this pattern to continue for the short term and again, barring any events, should eventually see a period of stabilisation, likely by the end of 2023.”
As highlighted by the Artemis Deal Directory and Q2 2023 cat bond and related ILS market report, of the huge level of issuance since in the first six months of 2023, a significant $7.1 billion came to market in the record-breaking second-quarter.
