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Cat bonds and casualty sidecars draw growth in insurance-linked securities

S&P Global Ratings said catastrophe bond pricing has improved, with spread multiples down versus prior soft cycles, but investors have not yet reached their hurdle rates.

Reported · Written up by our desk · Reinsurance

Insurance-linked securities are seeing growth this year, driven mainly by catastrophe bonds and casualty sidecars, according to remarks by Maren Josefs, a credit analyst at S&P Global Ratings, at a briefing in Monte Carlo.

Josefs said the ILS market increasingly plays a role in strategic risk management for cedents, with ILS used alongside existing reinsurance programs. She also pointed to how investor returns in a low-correlating asset class and nat cat losses below expectations have helped support supply, while demand for risk transfer remains tied to rising insured values from inflation and urbanization, alongside a widening protection gap.

Looking ahead, she highlighted new risk pressures including geopolitics, climate change, and technology advances, especially AI. She said the casualty sidecar segment is the bigger story within sidecars, while the cat bond market is “breaking all records.”

On pricing, Josefs said catastrophe bond market transparency gives a clear read on conditions and aligns with what is being seen in traditional reinsurance, noting that spread multiples have fallen and cat bond pricing is a significant decrease versus the previous soft cycle. She added that spread multiples are not yet down to investors’ hurdle rates, leaving appetite still constrained.

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