Q4 2022 Catastrophe Bond And ILS Market Report

• Published date: 05 January 2023
• Subject Matter: Insurance, Insurance Laws and Products, Reinsurance
• Law Firm: Appleby
• Author: Mr Brad Adderley

Fresh capital will enter the insurance linked securities (ILS) market, but while catastrophe bond deals successfully closed for year-end, others failed to complete, suggesting there's no rush to enter the space, according to Brad Adderley, Bermuda Managing Partner.

As this report shows, fourth-quarter catastrophe bond issuance significantly dropped year-on-year and came in below the ten-year average for the quarter.

As the market navigates what's expected to be a very late and prolonged reinsurance renewals season, the usual flurry of start-ups and capital raises is nowhere to be seen. After all, it's said that investor sentiment is cautious.

In light of this, we spoke with Appleby's Adderley about cat bond market dynamics and what this means for issuance in 2023.

"For me, the fact that certain deals have not been done this year-end, compared to the days where all deals would always get done, leads me to question if 2023 can be another record year," said Adderley.

"On top of this, it could also be the case that less people come to the market because they've heard stories that deals aren't getting completed," he added.

Reinsurance rates, notably for catastrophe-exposed lines, are expected to increase significantly at the January 1st renewals and beyond, and Adderley feels that price is playing its part in the cat bond market.

"I don't think, until people actually see the price and see the actual terms, that they really compute what they read in the press, to what they actually get. And, by the way, they also don't realise that if they don't accept the offer, there might not be another one."

"We've come from a market where the buyer drives the terms, right. Every year the buyer got better terms and every year the buyer got lower prices. Plus, the buyer always got coverage. So, it was a triple win. Now, you don't drive the terms, you don't drive the pricing, and by the way, you might not even get coverage."

"We were hearing of deals not getting done in June, and that was before Hurricane Ian, that was before more inflation and higher interest rates; June was before more escalation in Ukraine. So, if that was June, how many deals are not going to get done this January renewals?" said Adderley.

Expanding on this, Adderley told Artemis that he thinks it could...