Best’s Commentary: Life/Health Catastrophe Bonds Could Be ILS Market’s Most Loss-Affected Sector in COVID-19 Pandemic


OLDWICK, N.J.–(BUSINESS WIRE)–Life/health-related catastrophe bonds face the greatest threat of losses from the COVID-19 pandemic, compared with other insurance-linked securities (ILS), given their exposure to pandemics, extreme mortality and spikes in medical benefit claims.

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A new Best’s Commentary, “COVID-19 Impact on the Insurance-Linked Securities Market,” states that the overall impact of the COVID-19 pandemic on the ILS market, including most catastrophe bonds, should be limited given that the underlying risk coverage stems mostly from property losses arising from natural catastrophe perils such as hurricanes, earthquakes, tornadoes and wildfires. The most affected cat bond programs are those providing coverage against severe increases in medical benefit claim levels or increases in mortality rates due to a pandemic event. Of note is the $320 million IBRD Capital-At-Risk notes 111-112 cat bond from the World Bank’s Pandemic Financing Facility. Currently, all trigger conditions have been met and industry estimates put the payout loss amount at approximately $132.5 million.

The cat bond market reached record issuance levels in the first quarter of 2020. The immediate impact of COVID-19 is the delay in issuing future cat bonds because of the disruption in the capital markets. Sell-off activity has increased as generalist multi-strategy investment funds have looked to improve liquidity issues and maintain cash.

According to the commentary, the remaining segments of the ILS market—collateralized reinsurance, sidecar and industry loss warranty—will see varying impacts from the ongoing crisis. Legal actions focused on claims related to COVID-19 business interruption losses are likely to rise; the impact on the traditional and collateralized reinsurance markets will hinge on how successful these efforts are. AM Best also expects COVID-19 exposure to result in additional “trapped capital” that likely will be held for multiple years given that the ultimate quantification of covered losses will prove much more challenging.

Mortgage insurance-linked securities (MILS) transactions also may face challenges as a result of the COVID-19 outbreak. Given the bond market’s dislocation, private mortgage insurers may delay plans to sponsor more MILS transactions, until there is more certainty in the capital markets and the effect of COVID-19 on their operational results.

Overall, AM Best expects the COVID-19 outbreak to increase future demand for pandemic coverage, as this event will bring more awareness to the economic losses associated with pandemic exposures. It remains to be seen to what extent cat bond sponsors will bring this exposure to the capital markets.

To access the full copy of this commentary, please visit

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

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Asha Attoh-Okine
Associate Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5716

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Wai Tang
Senior Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5633

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644