With severe convective storms (SCS) having emerged in recent years as a significant catastrophe peril in the United States, SCS-focused cat bonds may offer a compelling opportunity for both re/insurers and insurance-linked securities (ILS) investors as the frequency and exposure of the peril continues to expand, according to Acrisure Re.
“In the United States, the frequency of loss‑generating SCS events has shown a persistent upward trend, and aggregate insured losses for the 2020–2024 period reached USD 200 billion – 2.5 times higher than the preceding five‑year period. Extreme examples such as the 2011 outbreak year illustrate the potential for outsized tornado‑driven catastrophes, while the 2022 France hail season underscores the international dimensions of the peril,” Acrisure Re explains.
The firm also highlighted how catastrophe modelling has undergone substantial refinement, with many modern SCS models now incorporating high‑resolution radar, advanced atmospheric reanalysis datasets, as well as significantly expanded claims data, and improved vulnerability calibration.
Against this backdrop, Acrisure Re outlines that catastrophe bonds have become an “increasingly attractive risk‑transfer mechanism for SCS.”
“Investor portfolios tend to be less exposed to the U.S. Midwest than traditional reinsurers, resulting in lower capital costs and competitive pricing for SCS‑focused structures. Since 2017, SCS has featured in one-quarter of total cat bond issuance, with strong growth in peril‑specific transactions, even as a standalone peril within Quercus II Re (2025). Modern structuring techniques have broadened access, allowing even smaller and mutual insurers to obtain cost‑efficient multiyear, fully collateralised protection,” the reinsurance broker explained.
Adding: “In an environment characterized by rising exposure, heightened loss activity, and evolving hazard patterns, SCS‑focused cat bonds may offer a compelling opportunity for insurers and ILS investors alike. Enhanced modelling capabilities, stronger empirical loss experience, and increasing market acceptance all support the development of innovative structures designed to manage volatility from frequent, non‑peak‑peril events.
“For U.S. regional insurers in particular, catastrophe bonds provide a materially valuable complement to traditional reinsurance—strengthening resilience, stabilising earnings, and supporting sustainable underwriting performance.”
Whilst examining whether SCS risk is growing within the United States, Acrisure Re explained that the country experiences roughly 1,200 tornadoes per year, which far exceeds any other region globally.
Therefore, this elevated activity appears to stem from the country’s distinctive geography, which winds up creating highly favourable atmospheric conditions for Tornado-genesis, particularly during the spring and summer months.
The reinsurance broker also identified that the perception of risk associated with tornado-related SCS losses has intensified, noting that insurers that are located in the U.S. Midwest, and home to the traditional “tornado alley” face recurring earnings pressure and, at times, capital-relevant events, which drives frequent reliance on reinsurance.
Citing numerous studies, Acrisure Re notes that the tornado alley appears to be shifting eastward, with the reasons for this remaining a scientific debate, but leading hypotheses’ reportedly include climate variability and warming effects impacting atmospheric moisture and instability, as well as changes in the jet stream and resulting storm tracks.
Moreover, Acrisure Re affirms that a number of indicators point to a rise being seen in both insured and economic losses associated with tornadoes.
Referring to data from the Swiss Re Institute, the report notes that severe convective storms have accounted for roughly 50% of global insured losses from secondary perils over the past decade, with hail alone representing an estimated 50–80% of total SCS losses.
While at the same time, the average annual number of loss‑generating SCS events in North America has risen by approximately 2% per year over the past twenty years.
“For the five‑year period from 2020 to 2024, insured losses from SCS totalled USD 199.5 billion (expressed in 2023 prices)—an increase of around 150% relative to the preceding five‑year period (2015–2019). This escalation was driven primarily by heightened loss activity in 2020, 2023, and 2024,” Acrisure Re said.
Going back to the cat bond market, Acrisure Re acknowledged that SCS have transitioned from being a risky and niche peril, to a more standard part of the catastrophe bond space today.
“Looking back to 2006 one can observe a steady increase of SCS coverage in 144A issuances, both in number bonds and in issued notional. While the “Mariah Re Shock” had given the inclusion of SCS as a peril a bit of a push-back between 2017 and 2021, it had clearly picked up thereafter. Since 2017, 25-30% of notional covers SCS and – excluding 2017 (outlier?) – 20-30% of all bonds cover SCS.
“We interpret 2017 as follows: cat bond spreads (the pendant of Rate on Line in traditional reinsurance) had been coming down for years, offering insurers an ever more pressing opportunity to diversify their reinsurance purchase into the cat bond space. This attraction culminated in the first half of 2017 (just prior to hurricanes HIM) and a then record volume was issued.”
As previously mentioned, a number of advancements have been made within SCS models in recent years, which have also shaped the treatment of aggregate risk and reinsurance structure design.
“Earlier generations of SCS models tended to underrepresent small loss events, leading to skepticism about the accuracy of modeled aggregate losses. As hazard resolution have increased, as stochastic catalogs have lengthened, and as claims-informed footprint calibration have become standard, contemporary SCS models now capture small and moderate events with far greater fidelity,” Landon Damiao, Vice President, Catastrophe Advisory, Acrisure Re explains.
Adding: “This improvement is particularly relevant for cedents seeking to manage earnings volatility arising from frequent but non catastrophic hail and wind events. It also supports the development of more reliable low-layer and aggregate catastrophe bond structures.”
Adding further to this, the paper explains that the maturation of hazard data sources, resolution, claims integration, and calibration techniques has fundamentally helped to improve both the accuracy and stability of SCS catastrophe models, and as a result, market participants now have a more reliable basis for evaluating aggregate exposures and low layer risk.
“The key implication for insurers and ILS investors is that the current market conditions may provide a supportive backdrop with favourable environment to develop and deploy innovative catastrophe bond structures and other capital market solutions,” Damiao further added.
Concluding: “These structures can play a role in helping firms manage the increasing financial impact of frequent, smaller SCS losses and to mitigate earnings volatility arising from active convective seasons, subject to each firm’s individual risk appetite, strategic objectives, and due‑diligence considerations.”
