The coalescence of more deals, new sponsors, and importantly, new risks, suggests it could be an expansive and record year for the catastrophe bond space, according to Brad Adderley, Bermuda Managing Partner, Appleby.

"It seems to be that we have more cat bonds on the go, more cat bond quotes; simply more is being done than the last couple of years," said Adderley in an interview with Artemis.

"It definitely seems busier than normal. So, I can see why the investment banks are saying that it's going to be a great year, because of the quotes that we're getting," he continued.

At approximately $3.3 billion, first-quarter 2023 cat bond issuance is above the ten-year average for the period, although it is still below the record $4.1 billion seen in Q1 2020.

Nevertheless, it's been a busy opening quarter for the marketplace, and numerous deals upsized while marketing, which suggests strong investor appetite for property catastrophe risks, despite 2022 being another year of outsized losses for re/insurers.

"If that's already happening (deals upsizing), you've got to figure why wouldn't that happen with other deals when we know there's more deals in the market, and we know there's an appetite to do the deals from investors," said Adderley.

"So, I would not be surprised if it is a record year," he added.

Alongside more deals, Adderley noted that the market is also seeing new sponsors and, in light of the first-of-its-kind $45 million cyber ILS deal sponsored by Beazley in Q1, is seeing new risks which are ultimately becoming more accepted across the marketplace.

"That means that I think you'll see more cyber, and I think you'll also see more new risk," said Adderley.

"We have lots of clients out there talking to us about forming cyber brokers, cyber commercial reinsurers and so on. It is more of a common theme; it is definitely coming up on a more regular basis. So, you've got to figure that all of this has got to lead somewhere.

"You've got to assume that because the investors in the recent cyber deal were able to get comfortable that one time, and I realise all deals are far from the same, but we all know that it does take a while to get comfortable with things. But if investors got comfortable doing the Beazley deal, then surely that means that when it comes to the second deal or the third deal, it will take less time to get to that level of comfort," he continued.

As Adderley emphasised, "it is always harder to start than to follow", so it should be the case that in terms of cyber ILS, "the next one will be easier to close."

"It would be great to see two or three more deals this year before Monte Carlo, which build on the expansion of the market. So, while it would be good to have a record year, it would be great to have more risks become normalised and more acceptable, where people stop talking about these risks being new and instead say, we've done this now," continued Adderley.

"All you need now is a couple of follow ups to some of these new risks, and I think, possibly, that builds on the fact that you've got these companies out there now that are focusing on cyber. The concepts, the thought processes and the education and analysis around these different risks is becoming normalised," he concluded.

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First Published In Artemis, April 2023

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