Swiss Re: 2024 ILS Market Growth, Investor Trends, and Future Outlook

The insurance-linked securities (ILS) market continued its trajectory of growth in 2024, with Swiss Re's latest report, "ILS Market Insights: February 2025," highlighting a robust performance for catastrophe bond investors. According to Swiss Re, the past 12 months have seen no single event large enough to materially impact the market, allowing for stable investor returns and steady expansion. 

Per the report, the ILS market experienced a 10.5 percent year-on-year growth rate and is poised to surpass the USD 50 billion mark in outstanding notional. This expansion was supported by a significant volume of bond maturities, high coupon returns, and capital inflows, particularly from undertaking for collective investment in transferable securities (UCITS) funds. The combination of these factors contributed to the market's resilience and reinforced its position as a vital risk transfer mechanism. 

Swiss Re said that despite a substantial number of bonds maturing throughout the year, a strong issuance pipeline helped drive market growth. The second and fourth quarters were particularly active, pushing primary issuance for the year to USD 17.2 billion. While the market continues to focus on US perils, Swiss Re Capital Markets (SRCM) observed increased diversification, including cyber risk cessions and the introduction of terrorism coverage via the French State pool GAREAT. Additionally, there was a growing interest in non-US perils, such as European windstorms and Japanese earthquakes, further broadening the risk spectrum covered by ILS instruments. 

Returns for investors, as measured by the Swiss Re Cat Bond Total Return Index, remained solid, although they did not match the exceptional performance of 2023. Per Swiss Re, these returns reaffirm the asset class's value proposition, positioning it as a compelling alternative to traditional credit products and attracting new investors to the space. The report also highlighted that new market entrants, particularly pension funds, have shown increased interest in ILS as they seek uncorrelated investment opportunities in a challenging macroeconomic environment. 

According to Swiss Re, 2024 was one of the most active years on record for industry-insured losses from catastrophic events worldwide. However, these losses were primarily driven by a high number of moderate-severity events and secondary perils such as wildfires, hailstorms, thunderstorms, and floods. Most ILS instruments are designed to respond to peak perils, meaning only the most severe events—such as major hurricanes and earthquakes—would trigger payouts. The report further noted that while traditional reinsurance markets saw increased pressure due to the frequency of secondary perils, the ILS sector remained well-capitalized and adaptive to evolving risk landscapes. 

Per Swiss Re, losses from prior years have continued to develop, prompting the ILS market to deliver USD 440 million in recovery payments to sponsors in 2024. This underscores the sector's role in providing post-event liquidity and supporting insurers in managing residual impacts from past catastrophes. The report emphasized that the ILS market's ability to efficiently deploy capital for long-tail claims further enhances its attractiveness for cedents seeking diversified sources of risk financing. 

Overall, the report indicates that the ILS market's resilience, diversification, and stable investor interest position it well for continued expansion. As capital continues to flow into the sector, ILS remains a fundamental tool in the broader risk transfer ecosystem. Swiss Re also pointed out that regulatory developments and climate change considerations are shaping the future of the market, with ongoing discussions around standardization, sustainability-linked bonds, and increased modeling sophistication playing a crucial role in the sector's long-term outlook.