Specialist investment manager Twelve Capital has highlighted another stunning year for the catastrophe bond market, pointing out that the Swiss Re cat bond Index has returned 40% in just two years, but also sharing a note of caution that further spread tightening is possible with investor demand elevated for the asset class.Reviewing 2024, Twelve Capital explained, “The Catastrophe Bond (Cat Bond) market has shown remarkable resilience and strong performance in 2024.Spreads remain elevated, well above historical ranges, resulting in double-digit returns including collateral yield – while the asset class remains uncorrelated to traditional financial markets.The Swiss Re Cat Bond index has returned over 40% over the last 24 months.” The investment manager went on to say that the majority of catastrophe losses were secondary peril related in 2024, meaning fewer flowed to the reinsurance industry and even fewer to the insurance-linked securities (ILS) market.

“These events highlight the growing influence of climate change, particularly its role in intensifying smaller but high-frequency catastrophes that collectively burden global insurance markets,” Twelve Capital said.Peak perils were evident though, especially with the Atlantic hurricane season, but “Favourable outcomes stemmed from storms avoiding densely populated areas, Cat Bond seniority and focus on senior layers of risk,” the investment manager explained.Twelve Capital added, “This resilience has further boosted investor confidence and encouraged continued capital inflows into the market.” Catastrophe bond issuance is on record-setting pace again in 2024, with Twelve Capital saying it could reach US $18 billion.

Right now, .Twelve Capital commented, “2024 saw record Cat Bond issuances, underpinned by strong supply from repeat issuers and new cedants seeking diversified risk transfer strategies, leading to an expected full year issuance of around USD 18bn.The market is also exploring non-traditional perils such as cyber risk and parametric solutions.

Although cyber Cat Bonds are still in their infancy, their development reflects evolving reinsurance needs despite modeling challenges.” Looking ahead, Twelve Capital noted that elevated spreads, compared to historical standards can persist.But, the investment manager cautioned that investor demand and appetite for catastrophe bonds being very high, the market could see spreads tighten further.“Looking ahead, continued investor demand could lead to a gradual spread tightening,” Twelve Capital said.

But added, “At the same time, structural issues such as increasing climate volatility, protection gaps, and demographic shifts continue to drive the need for innovative risk transfer solutions.“Cat Bonds, with their ability to bridge (re)insurance gaps and mitigate the impact of extreme weather events, play an important role.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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