ILS market insights: February 2024

The Insurance-Linked Securities ('ILS') market ended 2023 with record new issuance of catastrophe bond volume and strong investment performance for investors in the absence of large catastrophic events. 

The ILS market grew by more than 20% year-on-year to USD 43.1bn, up from USD 35.5bn in 2022. The combination of a large volume of maturing bonds and newly allocated capital were key attributes that led to the notable increase. 

After a relatively calm year in terms of large cat events, potential losses sustained in 2023 are expected to be somewhat benign. Throughout the year, notable events to impact the ILS market were the Kahramanmaras series of earthquakes in Turkey and Syria in February and Hurricane Otis, which hit the Acapulco region on the Pacific coast of Mexico in October. 

New issuance increased by 63%, reaching a record volume of USD 15.4bn, USD 2.6bn more than observed in 2021, when the previous record was set. The market saw 13 unique new catastrophe bond sponsors, who saw value in using alternative capital in addition to existing support of re/insurance relationships.Catastrophe bond investors demonstrated their ability to provide support in a newly defined pricing paradigm. Swiss Re Capital Markets ('SRCM') has observed new risk offerings, particularly in the cyber peril space. The emergence of the cyber ILS market has broadened the diversification of the asset class and provided a new arena for cyber writers to support their capital needs. 

In 2023, investors experienced a stark contrast in returns after a challenging 2022. The market ended the previous year with a high level of volatility and uncertainty around the potential loss from Hurricane Ian. Mark-to-market valuations recovered, and principal losses remained limited to a handful of structures. As a result, the Swiss Re Global Cat Bond Total Return Index posted a calendar year return of 19.69% for YE 2023. This is the highest one-year return for the index since 2002.