With first half 2024 cat bond issuance running more than 22% ahead of the same period last year, we spoke with Adderley about the outlook for the rest of the year and the sustainability of current issuance levels, as well Bermuda’s continued dominance as an insurance-linked securities (ILS) domicile.
“The unexpected increase, in terms of issuance, is very curious,” said Adderley. “It was only a couple of months ago we were all reading about spreads going down, and then they started going back up. So, it was almost like a blip for a while.”
After peaking in Q1 2023, both the average spread and spread above expected loss of cat bond notes issued dipped in Q2 before rebounding somewhat in Q3 and Q4 and dipping slightly in Q1 of this year. This quarter, both metrics have strengthened once again, and although they remain below the highs of Q1 2023, are strong and clearly attractive to market participants.
“So, in terms of total issuance for the year, given how strong it is at the halfway stage and market conditions, I do think that there’s a good chance we’ll see $20 billion of issuance this year,” he said.
2024 is the fifth consecutive year that has seen issuance exceed $10 billion, and in fact, in just three of the past 10 years has issuance failed to reach this level.
“At the end of the day, the more deals that get done this year, the more chance there is of future renewals,” said Adderley.
“It’s almost like a self-fulfilling prophecy. Ultimately, there’s more sponsors, more investors, and more cat bond deals getting done than ever before,” he added.
As cat bond issuance levels have increased over the years, new jurisdictions have emerged, but the reality is that Bermuda remains the
dominant ILS domicile.
Singapore has seen its first cat bond renewals this year, but just three of the almost 60 transactions to complete were issued out of the
country, while other ILS jurisdictions, such as London and Hong Kong, have struggled somewhat.
“It seems obvious that no one is going to other jurisdictions for the right reasons. Is it more efficient? Is it faster? Is it smoother? Is it cheaper? Do they have the right prudent regulation as we have in Bermuda? I don’t think so” said Adderley.
“There are rumours that some sponsors are subject to political pressure around the world to do cat bonds in some of those other jurisdictions, so being close to home, or home. But clearly so far this is not having any substantial effect.
“At the same time, many of the new start-ups, SPIs, sponsors and investors are in Bermuda, so it makes a lot of sense and, thanks in part to the efforts of the Bermuda Monetary Authority, has become easier to do everything in Bermuda,” concluded Adderley.
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First Published In Artemis, July 2024
