Catastrophe bond sales hit fresh record amid climate crisis
Catastrophe bond sales are skyrocketing, underscoring the growing appeal of what was once considered a relatively niche corner of the insurance industry. The issuance of so-called catastrophe bonds, or CAT bonds, has soared to $18.2 billion so far this year, according to specialist data provider Artemis.bm. With five months to spare, that’s already more than the record of $17.7 billion set across the whole of 2024. “It is quite something. It’s really been an impressive year,” Steve Evans, owner and editor-in-chief at Artemis.bm, told CNBC by video call. “We’re definitely going to see the first ever $20 billion year. It would be very unlikely that doesn’t happen. I mean, it would take some sort of major event or capital market disruption for that not to be beaten and that will be a new milestone,” Evans said. First created in the 1990s, CAT bonds refer to a type of financial instrument designed to raise money for insurers in the event of a natural disaster, such as a hurricane or earthquake. These insurance-linked securities (ILS) are essentially a way for insurers or reinsurers to offload the risk of potentially large losses from extreme events to investors. This in turn, provides insurers with access to funding, helping them to pay claims in the event of a catastrophe. Investors, meanwhile, have increasingly flocked to CAT bonds in recent years. In the absence of a disastrous event triggering a loss, these instruments are known to offer highly attractive equity-like returns, low volatility and low correlation to broader financial markets. The reality is that the market in this last two-and-a-half years has grown by whatever dimension you want to measure it. Head of ILS structuring for EMEA and APAC at Swiss Re Andy Palmer The emergence of CAT bonds as an increasingly mainstream financial instrument comes at a time when the climate crisis is leading to an increase in both the frequency and intensity of extreme weather events. In just the last few weeks, Greece has been battling major wildfires across the country, temperatures notched a national record of 50.5 degrees Celsius (122.9 degrees Fahrenheit) in neighboring Turkey, destructive and deadly flooding took place in Texas and climate change triggered record-breaking heat in Iceland and Greenland. ‘Astronomical growth’ Alongside increasing usage of the CAT bond market by insurers and reinsurers, it is thought that the portfolio diversification benefits of these bonds has helped to drive a surge in investor interest. Reinsurance company Swiss Re said in a report published Wednesday that the CAT bond market has expanded by a whopping 75% since the end of 2020, noting that the trend that shows little sign of slowing down. Andy Palmer, head of ILS structuring for EMEA and APAC at Swiss Re, said “astronomical growth” had helped to push the size of the CAT bond market to nearly $56 billion in the first half of the year. That’s up from around $35.5 billion as recently as year-end 2022. “One of the statements that historically was made to me in the past when I talked about CAT bond market growth was ‘oh yeah, but it’s the same guys just doing bigger deals. At the end of the day, it’s the same guy, same investor, same sponsors,'” Palmer told CNBC by video call. “The reality is that the market in this last two-and-a-half years has grown by whatever dimension you want to measure it,” he added. In terms of the investors buying CAT bonds, Swiss Re’s Palmer said dedicated ILS fund managers account for approximately 75% of the market, with he majority of that money stemming from pension funds. Multi-strategy asset managers, such as hedge funds or asset managers for institutions, make up the remaining 25% of the market, Palmer said. Geographically, insurers said the interest in CAT bonds was broadly global, with investment pouring in from the U.S., Canada, Europe, Australia and the Middle East. Insured losses German reinsurance giant Munich Re said in a report published Tuesday that insured losses from natural catastrophe events amounted to $80 billion in the first six months of 2025, marking the second-highest first-half figure since records began in 1980. Tobias Grimm, chief climate scientist at Munich Re, noted the “very heavy” U.S. dominance of such events, referencing the Los Angeles wildfires in January which accounted for about half of the total insured losses so far this year. “Europe was not as heavily affected to be honest, in the first half of the year,” Grimm told CNBC by video call. “But there were new warning signals. We had that event in Switzerland that was really outstanding, a kind of ice rock avalanche that completely buried a village,” Grimm said. “That’s a reminder of what’s coming ahead with climate change, also in Alpine regions,” he added. Munich Re said natural disasters caused first-half overall losses of $131 billion worldwide, a figure slightly lower than the same period last year but well above the long-term average.
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