Catastrophe bond issuance continues to grow after record year: Moody’s

After a record year, the issuance of catastrophe bonds is continuing to grow in 2021, Moody’s Investors Service reports.

The rating agency said the catastrophe bond market saw record issuance of US$11.4 billion in 2020, almost double the previous year.

The market looks even stronger this year, with nearly US$8 billion issued to date.

“For 2021, cat bond issuance should continue to grow with strong investor demand for the asset class as evidenced by the reduction in spreads and upsized deals seen over the last several quarters,” Moody’s said.

Spreads on catastrophe bonds increased in the first half of 2020 “in response to the coronavirus pandemic and impairment losses from 2017 and 2018 catastrophes,” Moody’s reported.

“Spreads began to tighten toward the end of the year as the economy stabilized and investors sought the diversification benefits of this distinct asset class,” it noted.

The tightening in spreads has continued this year, driven by investor demand, it said.

Longer term, the asset class could see further growth amid the increased interest in ESG investing and efforts to model emerging threats, such as cyber risks, Moody’s said.

Staff

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