Catastrophe bonds reached a record in 2021, with more than $12.8 billion of new issuance, surpassing the previous annual high set a year earlier.
The insurance-linked securities market also saw a dozen companies issue cat bonds for the first time, despite a “challenging year of catastrophe losses,” Swiss Re AG said in a report Thursday.
The growth in the cat-bond market, which helps provide capital for risks from natural disasters such as hurricanes and wildfires, comes as insurers hunt for ways to deal with increasing costs brought on by worsening extreme weather events and investors seek yield in a low-interest-rate environment.
“Clearly you see more and more sponsors being converted to the idea that it makes sense to buy your capacity from two different sources,” Judy Klugman, who heads insurance-linked securities sales for Zurich-based Swiss Re, said in an interview. “That’s really what’s driving all that additional issuance.”
From an investor’s perspective, the bonds offer a diversified investment that’s typically not correlated with other securities, Klugman said. They provide “relative value” for investors, she said, compared with other debt securities.
This article was provided by Bloomberg News.