Catastrophe bonds increase in importance again: Fitch

Catastrophe bonds increase in importance again: Fitch

Disaster bonds increased in importance for the worldwide reinsurance industry again in 2021, Fitch Scores has said, as the record levels of issuance seen helped to make feline bonds an even larger pool of risk capital supporting reinsurer businesses.Momentum in the disaster bond market continues to increase, Fitch stated in a current report, highlighting both the record level of issuance seen in 2021, as we detailed in our most current report, however also the truth that the cat bond market keeps growing, so taking an increasing share of worldwide reinsurance program capital.
By our numbers, on the impressive disaster bond market, development of 4.3% was seen through 2020, but then more than 7.6% in market development was seen in 2021, broadening the importance of feline bonds within reinsurance programs.

General reinsurance capital only grew 2.9% in 2021, according to figures from broker Guy Carpenter and score company AM Best.
Overall alternative reinsurance, or insurance-linked securities (ILS), capital only grew by 3.7% throughout last year.
Meaning that disaster bond risk capital grew at two times the rate of overall ILS, up until now surpassed private ILS and collateralised reinsurance and grew much faster than traditional reinsurance capital, which just grew at 2.8%, throughout the last year.
Fitch highlights the continued inflows into disaster bonds seen in 2021. We recorded that in our chart on UCITS cat mutual fund streams here.
In 2021, “Catastrophe bonds acquired in importance at the expenditure of collateralised reinsurance programmes and sidecars, continuing a trend that began in 2019,” Fitch Ratings explained.
Adding that, “Investors stuck to their choices as disaster bonds provided higher liquidity and a more clear-cut definition of what perils are covered.”
Looking ahead, the rating agency projections that, “Fitch expects that alternative capital in general– and catastrophe bonds in particular– will preserve their role for the reinsurance market in 2022.”
Its expected that catastrophe bonds will eat more into the domain of traditional reinsurance and retrocessional capital in time, as increasing numbers of new sponsors come to market and as the product itself evolves to provide brand-new layers and sort of coverage.
If issuance can be structured, made more effective and with expenses decreased, the feline bond market might witness a significant growth. As cost and effort for brand-new sponsors accessing feline bond market remains considerable, which can present a blocker for getting new companies into the market.

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