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Fitch says ILS, cat bonds, parametric covers can expand nat cat protection
Fitch expects natural catastrophe losses to rise over the medium to long term as events tied to wildfires and extreme precipitation become more frequent and severe.
Fitch Ratings says insurance-linked securities, catastrophe bonds, and parametric insurance could help insurers and reinsurers expand access to natural catastrophe coverage while still maintaining underwriting principles.
The agency points to rising economic and insured losses tied to natural catastrophe events, citing factors including wealth creation and urbanisation alongside climate change. Fitch expects losses to increase over the medium to long term, driven by more frequent and more severe events linked to wildfires or extreme precipitation.
Fitch said innovative nat cat protection formats such as microinsurance, parametric covers, and ILS can broaden access and bring in additional capital sources, but adoption remains limited by size and geographic reach. It also highlighted ongoing development in risk-transfer solutions like ILS for peak risks and improvements in nat cat modelling.
Fitch noted that reinsurers are especially pivotal due to their underwriting experience, ability to run their own nat cat models, and access to capital markets. It added that reinsurers increasingly act as originators of ILS, helping bridge insurance markets and institutional investors, and referenced cat bond market momentum in 2026, including more than $11.3 billion of new risk capital analysed and tracked through the second quarter.