Catastrophe bonds & ILS to remain in “hard market” territory in 2024: Lane Financial

After analyzing secondary market data for insurance-linked securities (ILS), consulting firm Lane Financial LLC concludes that the catastrophe bond and ILS market will remain in “hard market” territory in 2024, but may be only “half as hard” as it could be. were planned at the beginning of this year.

The latest analysis from Chairman Morton Lane and Lane Financial Vice Chairman Roger Beckwith compares forward-looking forecasts derived from secondary market prices from early 2023 to a more recent view, finding that the view has softened over the of this period.

In January 2023, the catastrophe bond and ILS market implied a considerably difficult market, as we saw during the first half of the year, although perhaps not the most difficult ever (but very close) .

However, by September, the forward outlook had softened significantly and Lane Financial’s analysis reveals that it has softened further by October 2023, while remaining firmly in “hard market” territory.


The chart above, taken from the latest Lane Financial article you can access via its website later today, shows the forward multiples for January, September and October 2023, showing how the implied market status has softened throughout this year.

But encouragingly, the analysis also plots the range of hard and soft markets for catastrophe bonds and ILS, in the shaded areas, clearly showing that from October 2023, the forecast issuance multiple expected to remain firmly in hard market territory.

From the September 2023 line on the chart, Lane Financial says: “Next year’s market is still ‘tough,’ but only half as tough as the early January forecast.

It softens further with the outlook for October 2023, and with issuance continuing in November, it will be interesting to see if this outlook softens further or if the market maintains its position.

In conclusion, Lane Financial says: “Should you invest in the ILS market next year? – Yes. Will you get the same returns as this year? – probably not.”

Adding: “In 2023, the rewards for taking risks with a cat were greater than 20 years out of 22. The rewards for 2024 are probably better than those for 15 or 22 years.

“Including the 5% variable rate, 2024 returns will likely be in the double digits for the lower teens, compared to the mid to high teens in 2023.”

Based on consistent expected losses, as of October 2023, Lane Financial’s analysis found that cat bond and ILS market multiples remain at their all-time highs for higher ELs, but for the lower ELs (1%), cat bonds have declined somewhat. , but multiples are still at their highest level since around 2013.

Of course, a lot could change in the coming months as the insurance-linked securities (ILS) market heads toward 2024, from capital inflows and inflows to catastrophe losses and more. by the broader scale of the capital market or even geopolitical volatility, which could affect investors’ views on the cost of capital and demand for returns.

Lane Financial’s analysis should provide some confidence to investors wondering whether the catalytic bond and ILS market will return to a weak market state.

At the moment, market data suggests it remains firmly within the historical hard market range, which should prove encouraging.

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