Need For High-Layer Capacity Drives Cat Bond Surge

Catastrophe bonds played a bigger role backstopping the insurance sector at recent reinsurance renewals as other sources of capacity contracted and returns rose for cat bond investors.

The increased demand for the bonds, which were one of the first insurance-linked securities when they debuted about 25 years ago, was one of the drivers that helped push the 2020 cat bond market to its record $11.3 billion in new issuance, market sources say.

"Catastrophe bonds helped to fill some of the retrocession capacity," said Philipp Kusche, New York-based global head of ILS and Capital Solutions for TigerRisk Partners Inc. Limited capacity in the retrocession sector was "one of the trends seen in fourth-quarter 2020," he said.