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Catastrophe bond sales rose to $17.7 billion this year, up 7% from last year, setting another record, Artemis data shows.
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The bonds transfer the risk of hurricanes and earthquakes to investors, who see big returns if disasters don’t happen.
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The rise in interest rates brings the total bond market to $49.3 billion.
A growing number of investors appear willing to take the risk of climate disaster as the catastrophic bond market grows at a blistering pace, posting record issuance levels for two years in a row.
Sales of the bonds, including those already issued and those still in the pipeline, rose to $17.7 billion this year, according to Artemis data.
These data indicate a 7% increase from last year and the second year in a row of record issuance, bringing the total market to $49.3 billion amid increased investor interest and as issuers look to transfer more risk.
The bonds transfer the risk of hurricanes, storms and earthquakes to private investors, using their money to pay out claims if those climate disasters occur.
In this way, the bonds help issuers minimize losses as the climate crisis makes weather events more extreme, and persistent inflation makes it more expensive to rebuild after disasters.
But if that again has disastrous consequences not happen, or the losses aren’t as great as expected, investors could see big returns, likely totaling about 16% this year, even after two major hurricanes rock the US this fall.
Hurricane Helene dumped heavy rain on northern Florida, Georgia and South Carolina as it moved inland, leading to widespread flooding.
But most affected areas lacked sufficient flood insurance, meaning most of the damage will result in economic losses rather than insured losses, protecting cat bond investors from the worst losses, according to a recent report from investment manager Twelve Capital.
Hurricane Milton, meanwhile, weakened to a Category 3 storm when it made landfall just two weeks later, meaning cat bond investors didn’t face the huge losses they initially expected, even though the damage from the hurricanes still turned out to be enormous.
“There were a number of strong hurricanes that made landfall, but as they did not directly affect major metropolitan areas, the impact on the reinsurance and Cat Bond markets is likely to be limited,” the report said, adding that this is likely to result in between $30 billion and $50 billion in losses for the insurance industry.
“Secondary perils,” such as wildfires, tornadoes and floods, are likely to have caused even more damage to the industry this year, with more than $50 billion in insured losses, the report said.
