Alternative investment managers are starting to take a serious interest in catastrophe bonds tied to wildfires, moving into a risk category that just a few years ago was seen as too difficult to model.More than $5 billion of cat bonds with some level of exposure to wildfire risk were issued by insurers and sold to investors this year, according to Artemis, a specialist in insurance-linked securities that tracks market trends. That’s more than twice the level in 2024, with previous years seeing just a smatte ...

Core Insights - The rise of catastrophe bonds is impacting the market share of reinsurers, with primary insurers increasingly relying on these bonds instead of traditional reinsurance [1][2] - The market for catastrophe bonds has grown significantly, with estimates indicating a growth of over 50% to $55 billion since 2023 [3] - Reinsurers are experiencing pressure on their rates due to the shift towards capital markets for risk transfer, leading to price corrections and diminished market dominance [6] Market Dynamics - Primary insurers now sponsor 58% of all catastrophe bonds, up from 48% two years ago, indicating a shift in reliance from reinsurers [1] - Reinsurers remain dominant but are losing market share to alternative investment managers seeking higher returns [2] - The increasing reliance on capital markets coincides with rising costs from natural catastrophes, with industry losses expected to exceed $150 billion this year [3] Catastrophe Bonds Performance - Catastrophe bonds can yield significant returns if no catastrophic event occurs, as evidenced by the Swiss Re Global Cat Bond Performance Index, which gained about 10% this year [4][5] - The issuance of catastrophe bonds has reached record levels, with projections for continued growth into 2025 [5] Reinsurers' Response - Some reinsurers are adapting by increasing their involvement in the catastrophe bond market, both as issuers and investment managers [7] - Swiss Re emphasizes the importance of capital market instruments as complementary to traditional reinsurance, aiming to provide effective risk transfer solutions [8]