TD's CAT Bond Issuance: A Step in the Right Direction for Canada's Property and Casualty Insurance Industry

On January 23, 2025, TD Insurance (TDI) announced that it had successfully issued Canada's first catastrophe bond (CAT bond), which was created specifically to cover Canadian perils. CAT bonds are structured to transfer the risk associated with natural catastrophic events, such as tropical storms, flooding, wildfires, and/or earthquakes, from the insurance industry to capital market investors. This debut issuance by TDI could make CAT bonds more attractive to other Canadian insurers.

Key highlights include the following:

-- TDI's CAT bond issuance will help provide more insurance coverage for Canadians while also protecting insurers by transferring a portion of their catastrophe risk exposure to the capital markets.
-- CAT bond issuance has grown over the years, and these bonds are now an established form of alternative risk transfer for the insurance industry.
-- These instruments should remain attractive to investors because CAT bonds provide investors with a low correlation to the financial markets and offer
reasonable risk-adjusted returns. For issuers, CAT bonds provide a unique opportunity to reduce their catastrophe exposure apart from traditional reinsurance.

"Since CAT bonds are effectively collateralized reinsurance, they can also help free up or strengthen insurers' regulatory capital positions, potentially helping improve their credit profiles," said Victor Adesanya, Vice President, Global Insurance & Pension Ratings.