Investor and issuer interest in the catastrophe bond product remains strong amid healthy market dynamics, and the expectation is that 2024 will be another record year for the space, according to Vincent Prabis, Managing Principal, ILS at Hiscox Re & ILS.
With H1 2024 cat bond issuance once again exceeding the $9 billion mark on the back of a record 2023 for the market, Artemis spoke with experienced insurance-linked securities (ILS) professional, Prabis, about market dynamics and the outlook for the months ahead.
“We believe it’s going to be a record year,” said Prabis. “This volume of issuance is a testament to the maturity of the asset class.”
Prabis described market conditions as dynamic, fantastic, and very healthy, and stressed that the growth of the market represents where demand for the product is and where the issuers are as well.
“We are seeing continued, strong investor interest. The risk-adjusted return of the space is still very attractive. And obviously, the diversification of cat bonds, which is a key area of differentiation, is still very valid as investors continue to look for portfolio diversification. It just works,” said Prabis.
He went on to highlight the impressive performance of the cat bond product during both the 2008 global financial crisis and also during 2022, when both the stock market and all credit-related investment did not fare very well.
“ILS funds, even with Hurricane Ian, whether it was on the liquid side or the less liquid collateralized reinsurance side, performed as expected. And investors value that very much,” said Prabis.
On the issuer side, continued Prabis, interest is also still very strong.
“As you’re aware, there are a lot of repeat issuers and some have been issuing for 25 years now, but there are also new issuers entering the marketplace. That is a testament to how mainstream cat bonds are. It’s not simply a novelty anymore. It’s a tool in the same way you have ILWs,” said Prabis.
For 2024, Hiscox Re & ILS launched its first cat bond fund and also launched a new sidecar vehicle, and Prabis explained to Artemis that the timing was perfect.
“Again, there’s demand and there are sufficient issuers to serve that extra capital,” he said.
“Hiscox has had great success for over a decade on a collateralized basis, and it’s a natural evolution for us to offer the cat bond product. At Hiscox Re & ILS, we are fortunate to have deep underwriting expertise, and importantly, our cat modelling and risk quantification teams are equally strong. We’re going to be applying this expertise to cat bonds in the same way we’ve been doing on the traditional side with an aim to repeat the success we’ve had with collateralized reinsurance,” said Prabis.
In 2023, fee income from the Hiscox ILS and third-party reinsurance capital business grew $51.1 million to $101.7 million, with the company noting substantial profit commissions generated in the year.
Looking ahead, Prabis explained that Hiscox Re & ILS is definitely looking to grow on the back of not just what it’s been doing with ILS funds, but with third party capital in general.
“One of the strengths of Hiscox Re & ILS is our multi-pronged capital strategy, which includes the Group’s own capital, and quota share arrangements, which we have offered for more than 15 years. On ILS, we’ve grown our funds for more than 12 years and their performance speaks for itself. We’re pleased to continue to evolve our offerings with our cat bond fund and with the launch of our first sidecar this year. We’re seeing real interest in these offerings from investors.
“We’re looking to grow and initiate new relationships with quota share partners and Capital partners into our funds.
“Hiscox has deep expertise in reinsurance, developed over more than fifty years writing this type of business. Similarly, on ILS, we have a demonstrated track record of driving value for investors by leveraging our data-driven insights and comprehensive understanding of reinsurance risk. Our partners understand that by working with us they get superior operational and risk alignment, and of course, excellent market access through our brand, rating, and the underwriting teams,” said Prabis.
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