US insurers continue to have minimal investments in ILS/cat bond markets

Written by Adam Cadle

13/09/2022

US insurers continue to have minimal investment exposure to the insurance-linked securities (ILS) and catastrophe bond markets, despite it seen significant growth in recent years, AM Best has revealed.

US investments in the ILS and catastrophe bond market are highly concentrated, with just five companies accounting for 70% of industry investments. US insurers hold approximately $850m of the roughly $33bn outstanding catastrophe bonds, despite the generally higher returns these bonds offer, given insurers’ continual search for yield and the low correlation of the asset class with the broader capital markets, which provides diversification.

The minimal exposure also comes as catastrophe bond issuance has reached record levels.

“Issuance in the 144a catastrophe bond market reached a record $12.5bn in 2021, exceeding the previous record set in 2020 by almost $1.5bn,” AM Best, associate director, industry research and analytics, said.

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