Significant growth in the catastrophe bond market was a key supply-side driver in 2024 and 1 January 2025. Pricing peaked in June ahead of what was forecasted to be an active hurricane season, only for strong investor appetite and various catastrophe bond maturities ($3.8 billion in the second half of 2024) thereafter to put pressure on rates, which were down in the double-digit percentage range towards the end of the year. They nonetheless remain at attractive levels for both sponsors and investors.
“The catastrophe bond product has become a key building block of many reinsurance programmes, and the current market environment can in many cases provide more attractive pricing than traditional reinsurance protection, creating further interest from sponsors (as borne out in the second half of 2024),” said Philipp Kusche, Chairman of Howden Capital Markets & Advisory Europe and Co-Head of Global ILS.
Hurricanes Helene and Milton had little impact on the catastrophe bond market, and whilst secondary spreads widened in the low single-digit-range at the time of landfall, no material principal reduction was recorded.
“The overall impact of such events further fosters confidence from investors that, even following an active hurricane season, the impact to overall returns has been relatively small given overall high pricing levels,” Kusche said.
Average transaction sizes increased to US$262 million at the end of 2024 from US$218 million in 4Q23, catapulting new issuance in 2024 to ~US$17.5 billion, which marks a new issuance record since the market’s inception. Catastrophe bonds continue to be the preferred ILS product due to where they transact (i.e. higher layers with specific named perils) and the liquidity provided to investors.
