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Best’s News & Research Service - September 13, 2022 08:23 AM (EDT)

Best’s Commentary: U.S. Insurers Have Minimal Investments in Insurance-Linked Securities and Catastrophe Bonds

  • September 13, 2022 08:23 AM (EDT)

Oldwick //BestWire// - Although the insurance-linked securities (ILS) and catastrophe bond market has seen significant growth in recent years, U.S. insurers continue to have minimal investment exposure to this asset class, according to a new AM Best commentary.

In its Best’s Commentary, “U.S. Insurers Have Minimal Investments in Insurance-Linked Securities and Catastrophe Bonds,” AM Best states that U.S. investments in the insurance-linked securities (ILS) and catastrophe bond market are highly concentrated, with just five companies accounting for 70% of industry investments. U.S. insurers hold approximately $850 million of the roughly $33 billion 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 $12.5 billion in 2021, exceeding the previous record set in 2020 by almost $1.5 billion,” said Jason Hopper, associate director, industry research and analytics, AM Best. “However, the global ILS market remains saddled with prior catastrophe losses, and the overall performance of ILS funds deteriorated despite another year of record catastrophe bond issuance.”

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=323850 .

For more insight into the ILS market, please see the recent Best’s Market Segment Report, “Supply and Demand Dynamics on Full Display in the Insurance-Linked Securities Market.”

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.



Insurance-Linked Securities International United States Commentary Catastrophe Bonds Press Release Structured Finance A.M. Best Rating Services, Inc. Insurance


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