ILS & cat bond market smashes records, innovation to drive growth: Aon

by Artemis on July 9, 2014

The insurance-linked securities (ILS) market saw records smashed as sponsors secured a record quarters worth of catastrophe bond coverage, according to the latest ILS market report from broker Aon’s capital markets unit, Aon Benfield Securities.

Aon Benfield Securities (ABS) recorded 12 catastrophe bond transactions during the second-quarter of 2014, bringing new risk capital to market of $4.5 billion. Note that ABS’ number does not include the private cat bond (or cat bond lite) deals that Artemis includes, hence the $4.634 billion from 17 transactions we recorded.

ABS notes that Q2 2014 was a record single quarter in the catastrophe bond markets history. The first-half of the year was also a record on ABS’ numbers, when added to the $1.4 billion of new ILS issues it recorded in Q1 it gives the broker a total of $5.9 billion for the half-year, the highest ILS issuance for such a period ever. Again, note, this is lower than Artemis’ first-half of 2014 figure of $6.219 billion due to the private cat bond deals we try to include.

Paul Schultz, Chief Executive Officer of Aon Benfield Securities, commented on the strong issuance; “After a strong 2013, the ILS market has managed to increase its momentum through the first and second quarters of this year, with new records being set for issuance volumes and more catastrophe bonds on-risk than at any other time in the market’s history.”

Catastrophe bond & ILS issuance by quarter

Catastrophe bond & ILS issuance by quarter - Source: Aon Benfield Securities

As of the 30th June ABS said the outstanding catastrophe bond and ILS market has reached another all time high of $22.4 billion as issuance outpaced maturities significantly, allowing for further outright ILS market growth (again a little below the $23.062 billion in the Artemis Deal Directory).

Pricing continued to help to drive issuance and demand for cover from ILS and cat bonds, with pricing remaining in line with historic lows witnessed this year. Investor demand kept pace with the increased level of cat bond supply, said ABS, which enabled sponsors to complete coverage at increased sizes and competitive rates.

The record issuance allowed investors to allocate the capital they had raised in an efficient manner and new issues outpaced maturities by over $1.4 billion, on ABS’ numbers. Some sponsors grew their spend on ILS during the quarter, such as Allstate which grew its catastrophe bond protection by 2.7x compared to 2013 and Florida Citizens doubling the amount of its maturing cat bond capacity.

ABS believes that the market will find continued growth by continuing to innovate, in terms of deal terms, structures and efficiencies, with product development an increasingly important feature of the market.

Schultz continued; “We believe that there are still further opportunities for expansion, especially if the sector continues to innovate in terms of its product offerings.  For instance, our recently launched CATstream facility enables our clients to access capital markets capacity in around half the time than for a traditional catastrophe bond solution.”

Looking ahead, ABS said that it continues to see new capital flowing into ILS strategies which it believes will put downward pressure on ILS spreads. It also believes that the market will continue to show interest in high-yield transactions as ILS investors look for methods to increase the absolute yield across their portfolios.

If the trend seen so far in 2014 continues and strong growth remains, Aon Benfield Securities believes that 2014 could be a record year for the ILS market.

You can find Aon Benfield Securities Q2 report via its website.

 

Artemis’ Q2 2014 Catastrophe Bond & ILS Market Report – The Biggest Quarter, The Biggest Catastrophe Bond

Artemis Q1 2014 Catastrophe Bond & ILS Market Report - A Record QuarterWe’ve now published our Q2 2014 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the record second-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014.

Download your copy here.

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