The secondary marketplace for disaster bonds in 2024 noticed distinct shifts in buying and selling exercise, with durations seeing high-volumes of trades, in addition to occasions when the market was bid-heavy however fewer trades occurred, in keeping with Swiss Re Capital Markets (SRCM), the insurance-linked securities (ILS) division of the worldwide reinsurer.
In its final ILS Market Insights report, Swiss Re highlighted a surge in buying and selling on the finish of the primary quarter of 2024, as traders responded to redemption pressures by rising bond gross sales.
Nevertheless, because the market braced for a predicted “traditionally energetic” hurricane season, many traders opted to carry larger-than-usual money positions, as they anticipated alternatives to buy bonds at a reduction within the occasion of a giant hurricane.
“These money positions, mixed with the robust coupon accrual within the funds, contributed to a “bid-heavy” secondary market all through a lot of the second half of the yr,” SRCM famous.
Moreover, the report additionally highlighted how there was a big decline in secondary market buying and selling throughout the second half of the yr, as some traders selected to retain bonds regardless of elevated valuations, fairly than changing holdings into money to reinvest.
“In the event that they bought their bonds within the secondary market, it was unlikely that they might have the ability to buy new bonds at engaging costs,” SRCM defined, including that this dynamic resulted in fewer trades, however an abundance of liquidity.
By the fourth quarter, nevertheless, an uptick in major market issuance started to affect secondary buying and selling, as traders moved to liberate money to put money into newly issued cat bond offers.
This shift finally helped restore steadiness between provide and demand for money out there.
SRCM concluded: “The market begins the brand new yr with a a lot better steadiness between the availability and demand for money than noticed in early This fall 2024.”
In its newest ILS market report, Swiss Re additionally highlighted that the ILS market has grown by 10.5% year-on-year, and is on monitor to exceed USD 50 billion of notional excellent within the close to future.
