There has been record issuance of 144a catastrophe bonds in 2021 so far as investors seek greater yields.
New sponsors to the market include some reinsurers which have substituted retro for cat bonds through aggregate structure agreements. Cat bonds can offer greater transparency and predictability as terms of risk coverage tend to be more precise, as well having as a robust performance history throughout periods of economic turmoil.
The cat bond market has also started to gain credibility with consideration to ESG, as the first green catastrophe bond was issued earlier in the year by Generali at €200m and was deemed a great success. It featured some innovative elements on both the asset and liability side such as allocating solvency capital towards solely green assets or inherently green insurance policies (i.e. pay-as-you-drive car insurance which can encourage policy holders to drive less frequently).
Other new sponsors included mutuals and corporate insurers, as well as some public entities such as the Federal Emergency Management Agency (FEMA). This would suggest that catastrophe bonds can be expected to grow in popularity for a variety of investors across the alternative capital space as it becomes a better understood and more dependable way of diversifying long-term investments.
In the first six months of the year, USD 7.9 billion in new bond issuance entered the market, via 27 unique transactions for 26 different sponsors.