ILS Market: Record Growth and Strong Returns

According to Swiss Re's latest insurance-linked securities (ILS) market insights, the ILS market closed out 2023 with record-breaking new issuance of catastrophe bond volume and healthy investment performance. Surpassing expectations, the market witnessed impressive growth of over 20 percent year-on-year, reaching $43.1 billion compared to $35.5 billion in 2022. This expansion was driven by a combination of increased maturing bonds and fresh capital infusion.

Swiss Re said that despite a relatively uneventful year in terms of major catastrophic events, the ILS market faced challenges such as the Kahramanmaras earthquakes in Turkey and Syria in February and Hurricane Otis striking the Acapulco region of Mexico's Pacific coast in October. Nevertheless, new issuance surged by 63 percent to a record volume of $15.4 billion, attracting 13 unique new catastrophe bond sponsors. Swiss Re believes this surge in issuance underscores the growing appeal of alternative capital alongside traditional reinsurance relationships.

Notably, 2023 witnessed a transformation in investor returns, marking a stark contrast to the challenges of the previous year. Despite initial volatility and uncertainty surrounding potential losses from Hurricane Ian in 2022, the market rebounded, culminating in the Swiss Re Global Cat Bond Total Return Index achieving a calendar year return of 19.69 percent for year-end 2023, the highest 1-year return since 2002. Swiss Re believes this success reflects the resilience of catastrophe bond investors and the evolving dynamics of the ILS market, including the emergence of new risk offerings, particularly in the cyber-peril space, which has expanded diversification and provided additional support for capital needs.