© Reuters.
Catastrophe bonds, utilized as risk transfer tools since the 1990s, have seen record returns in 2023, largely attributed to a mild hurricane season in Florida and rising interest rates. The Swiss Re (OTC:) index indicates a robust 16.2% return from January to mid-October, with Artemis.bm forecasting a total return of approximately 20% or higher.
Despite the north Atlantic hurricane season extending until November 30, Florida has been struck by only one major hurricane this year. However, the impact of Hurricane Otis on Acapulco could pose significant costs for insurers. Large pension and hedge funds are key investors in catastrophe bonds, which can result in notable losses if a disaster causes a preset amount of damage.
In 2022, Hurricane Ian resulted in estimated damages ranging from $35 billion to $55 billion, leading to a substantial drop in catastrophe bond prices, as noted by Credit Suisse. Moody’s (NYSE:) anticipates that climate change will persistently influence the market due to an increase in extreme weather events.
The first half of 2023 witnessed a record issuance of $10bn in catastrophe bonds. This surge was primarily driven by less severe losses from Hurricane Ian than initially projected and an uptick in interest rates. Looking ahead, S&P and Reed Smith anticipate the market remaining strong into 2024, despite the escalating frequency of extreme weather events akin to Hurricane Katrina.
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