Resilient Growth: Swiss Re's 2024 Insights on the Insurance-Linked Securities Market

Swiss Re's Insurance-Linked Securities Market Insights report for August 2024 offers an overview of the insurance-linked securities (ILS) market's performance in the first half of the year. According to the report, inflationary pressures from 2023 have eased, contributing to a stabilizing economic environment in many developed nations, though geopolitical instability continues, particularly with elections in key countries and ongoing conflicts in Israel and Ukraine. Despite these challenges, the catastrophe bond market displayed low volatility, as noted by Swiss Re.

The primary ILS market saw record-breaking issuances in the first half of 2024, with more than $12.3 billion across 49 transactions, driven by high investor demand and surplus capital, according to Swiss Re. This represents a continuation of the growth trend seen in 2023. The report highlights that the second quarter of 2024 was particularly strong, with issuance volumes hitting new highs.

In the secondary market, trading activity reached unprecedented levels in Q2, with April 2024 marking the most active month in cat bond trading history. Swiss Re reported that spreads widened during the quarter as investors shifted focus from the secondary market to longer-dated notes in the primary market. This dynamic was particularly notable in industry loss-triggered notes, which saw increased liquidity.

Swiss Re's cat bond indices continued to reflect strong returns, with the Global Cat Bond Total Return Index showing a 4.6 percent return in Q1 2024. While performance plateaued in Q2 due to secondary market price pressures, the first half of the year closed with a 5.8 percent return. The report attributes these returns to benign loss activity and a strong demand from investors.

Natural catastrophe events in 2024, including tornadoes in the United States and earthquakes in Japan and Taiwan, have caused significant damage but have not yet led to major losses in the cat bond market, per Swiss Re's report. However, the report does note that these events are contributing to the erosion of aggregate structures in the market.

Swiss Re also spotlighted several new entrants to the market in 2024, highlighting the growth in first-time sponsors leveraging ILS solutions for risk transfer. According to the report, nine new sponsors entered the market in the first half of the year, further demonstrating the market's resilience and attractiveness.