Sarah Demerling
Partner
Bermuda
In recent years, catastrophe bonds have caught the market's imagination as traditional indemnity-triggered cat bonds have lost their sparkle. By Q4 2023, industry loss cat bonds made up 29% of the overall market, growing by 7% from the year before. It is clear investors are looking for more efficient ways to manage risk without being overly dependent on individual cedants’ underwriting performance.
Why are industry loss cat bonds becoming so popular?
In short: they’re often safer and quicker to pay out. Unlike traditional indemnity-triggered bonds, which tie payouts to the specific losses of a cedant, industry loss cat bonds are triggered based on reported industry-wide losses. The result is less reliance on individual underwriting and claims management, as well as potentially faster payouts for cedants after a qualifying loss event.In Bermuda, using Special Purpose Insurers (SPIs) as the vehicle for these deals further enhances the appeal of industry loss cat bonds. SPIs offer flexible regulatory oversight, off-balance sheet protection and bankruptcy remoteness, making them an ideal choice for structuring these bonds.
However, these bonds aren’t entirely without risk. These complex transactions, including payout factors, reset mechanisms and extensions, need a thorough understanding to fully appreciate their benefits and potential risks.
Read our latest advisory
For those looking to understand more about how industry loss cat bonds can enhance their investment strategy, our comprehensive advisory provides an in-depth analysis of their structure, benefits and key features.Discover how industry loss cat bonds can provide a strategic edge in today’s ILS market here.
If you’d like to hear more, our insurance team in Bermuda can provide you with tailored, strategic advice for your portfolio – get in touch today.
