{"id":321310,"date":"2025-10-21T14:04:10","date_gmt":"2025-10-21T14:04:10","guid":{"rendered":"https:\/\/www.europesays.com\/us\/321310\/"},"modified":"2025-10-21T14:04:10","modified_gmt":"2025-10-21T14:04:10","slug":"catastrophe-bonds-huge-market-gains-put-reinsurers-on-backfoot","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/321310\/","title":{"rendered":"Catastrophe Bonds\u2019 Huge Market Gains Put Reinsurers on Backfoot"},"content":{"rendered":"

The seemingly unstoppable rise of catastrophe bonds may now be eroding the market share of reinsurers.<\/p>\n

After years of raising prices, reinsurers are finding that primary insurers have started relying less on them and more on a niche bond market designed as a backstop for only the most extreme disaster scenarios. According to estimates provided by Barclays Research, primary insurers now sponsor 58% of all cat bonds, up from 48% two years ago.<\/p>\n

The upshot is that reinsurers face new market dynamics, with catastrophe bonds appearing to play an \u201cimportant\u201d role in that shift, said Ivan Bokhmat, European insurance analyst at Barclays.<\/p>\n

Reinsurers are still the dominant providers of cover for primary insurers. But an ever larger share of what they do is moving over to alternative investment managers chasing double-digit returns on secondary markets.<\/p>\n

Insurers\u2019 growing reliance on capital markets coincides with a steep rise in costs triggered by natural catastrophes. Industry losses tied to extreme weather events are set to exceed $150 billion this year, which is well above the historical average, according to risk modeler Verisk. Since 2023, meanwhile, the market for so-called cat bonds has grown by well over 50% to $55 billion, estimates provided by insurance broker Aon Plc show.<\/p>\n

Buyers of cat bonds can face deep losses if a pre-defined catastrophic event occurs, but face sizable returns if it doesn\u2019t. The bonds sailed through last year\u2019s hurricane season without any payouts of note, in part as fund managers use increasingly sophisticated models to assess the terms of the bonds they buy.<\/p>\n

In 2022, when Hurricane Ian devastated large parts of the US east coast, the Swiss Re Global Cat Bond Performance Index only lost about 2%. This year, the index is up about 10%, after delivering record gains since 2023. But capital markets investors may quickly retreat if catastrophe bonds stop performing, with Barclays cautioning that returns to date have been aided by \u201ca clear element of luck.\u201d<\/p>\n

With investor interest still on the rise for now, issuers of cat bonds are seizing the moment. In recent years, cat-bond issuance has set a record, and is on track to do so again in 2025. Maggie O\u2019Neal, head of sustainable investing research at Barclays, notes that the pace of cat bond issuance is clearly picking up, with the growth rate since 2023 roughly equivalent to what previously would have taken half a decade to achieve.<\/p>\n

The speed of the expansion has put pressure on reinsurance rates, with \u201cclear signs of price correction,\u201d Barclays said.<\/p>\n

The development speaks to the \u201ccontinued disintermediation of the risk transfer market away from traditional reinsurers towards capital markets,\u201d according to the bank. That implies \u201cfurther dilution of reinsurer returns across business lines,\u201d it said. Barclays notes that as reinsurers see their market dominance diminished, they\u2019re being forced to lower prices.<\/p>\n

Against that backdrop, some reinsurers are stepping up their presence in the market for cat bonds, not just as issuers but also as investment managers. Swiss Re, which this year took over a GAM Holding AG portfolio of cat bonds from hedge fund Fermat Capital Management, says that capital market instruments represent \u201can important and complementary part\u201d of its business.<\/p>\n

As a large issuer of cat bonds, \u201cour focus is on delivering the most effective and efficient risk transfer solutions for our clients,\u201d a spokesperson for Swiss Re said by email. \u201cBoth capital markets and traditional reinsurance can work together to help build resilience against natural catastrophes.\u201d<\/p>\n

What Bloomberg Intelligence Says<\/strong><\/p>\n

P\/C insurers like Allstate and Progressive face greater 2025 profit risk than reinsurers, with $50 billion in losses through 3Q from frequent severe convective storms \u2014 producing destructive winds, hail and thunderstorms \u2014 vs. just $350 million from hurricanes, which have been few. Since 2020, SCS losses have been 50% higher, pressuring P&Cs\u2019 low-layer risk, while reinsurers and catastrophe bonds\u2019 hurricane exposure is driving stronger returns.<\/p>\n

Copyright 2025 Bloomberg.<\/p>\n

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