Following a record year for catastrophe bond issuance in 2024, the cat bond market remains strong, and according to analysts at RBC Capital Markets, it should continue to remain a critical part of companies’ risk management tools, alongside reinsurance purchases.Analysts also highlighted that investor demand for cat bonds remains strong, driven by a growing track record of solid returns and the ability to withstand major catastrophe events with minimal impairments.Looking back, as fourth-quarter issuance of $4.5 billion more than offset a quiet third-quarter, which ultimately took the outstanding market to a new high of $49.5 billion.Commenting on 2024’s record catastrophe bond issuance, RBC Capital Markets said: “With 2023 already a record year in the cat bond/ILS market, we were wondering if the momentum could continue in 2024.

The answer was yes and then some.“We think that the cat bond market has been successful in attracting new capital (and repeat investors), which is feeding the market demand.” Adding: “We would note that it has been an active few cat years for the P&C industry with Swiss Re recently noting that global catastrophe losses amounted to $144 billion in 2024 vs.$125 billion in 2023.

“Last year represented the fifth straight year of global cat losses above the $100 billion threshold.That said, cat bonds are severity type instruments and the real risk in the potential loss of principal to cat bond investors is when mega cat events happen.Investors don’t seem to be scared off by large global cat tallies each year and until there are major impairments to actual cat bonds we don’t see that happening.” Addressing the reasons behind this robust new catastrophe bond issuance that’s being seen across the ILS market, analysts noted that returns on cat bonds have been solid throughout the past few years, which is typically a tailwind for future new issuances.

“We continue to think that demand is high for loss mitigation related to cat events and buying reinsurance or issuing cat bonds are two ways to accomplish that objective,” they added.Commenting on the recent Los Angeles, California wildfires, RBC Capital Markets explained that it does not think that the wildfires are going to stop strong new issuance flow, even if there are some impairments of layers.Analysts also commented on the current state of the cat bond market today, explaining, “We think that there is the appeal of cat bonds being non correlated assets that provide some level of defensiveness from what is happening in the global economy.

“We can recall several years ago wondering if cat bonds would go out of favor if overall interest rates move a lot higher.The question has been answered as far as we are concerned.” Moving towards cyber cat bonds, which since their introduction to the market in 2023, the industry has now seen 10 cyber cat bonds develop, analysts highlighted how cyber can be considered a catastrophe due it being capable of producing large losses across the industry, if a certain event comes along.Looking back at last year’s CrowdStrike global IT outage event, that the event did not move cyber cat bond secondary market prices, but it did however raise questions about cyber loss accumulation and aggregation risks, and highlighted some uncertainties over exactly what cyber cat bonds cover.

Additionally, analysts noted that a number of cat bonds on the life and health side have developed across the market in recent years, indicating that this is another potential area that could develop over time.Commenting on their outlook for the catastrophe bond market in 2025, RBC Capital Markets said, “We continue to believe that the cat bond market has legs and should stay a critical part of companies’ risk management tools balanced alongside a reinsurance buying strategy.Concluding: “Investor appetite for cat bonds hasn’t faded, in our view, as there is now a longer track record of decent returns and making it through mega cat events with little in the way of impairments.

While it is tough to know if 2025 will set new records (again) in the cat bond market, this year is off to a solid start with the .All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.