Robust start to 2017 cat bond issuance, on track for $8bn: Aon Securities

by Artemis on April 28, 2017

The catastrophe bond market got off to a “robust start” in 2017, with high issuance managing to outpace the maturities in the quarter, suggesting that the brisk start to the year could continue and help the total cat bond limit placed in 2017 reach the forecast $8 billion, according to Aon Securities.

In its latest quarterly catastrophe bond and insurance-linked securities (ILS) market report, Aon Securities highlights a near record level of 144a broadly marketed cat bond issuance in Q1 2017, with the broker citing $2.17 billion of new limit placed.

This is below the record $2.76 billion of catastrophe bonds recorded by Artemis, which includes the privately placed deals we have information on, as Aon only counts the more broadly marketed cat bond placements.

Aon’s $2.17 billion of cat bonds recorded falls short of the record first-quarter that fits its numbers, of $2.21 billion, by a very small margin.

Catastrophe bond issuance by quarter

Catastrophe bond issuance by quarter

$2 billion of catastrophe bond limit matured in the first-quarter, by Aon’s reckoning, which meant that the outstanding cat bond market grew once again. As we reported recently, the outstanding cat bond market reached a record size of $27.7 billion just a few weeks ago, although it has now shrunk again due to maturities.

Aon notes that more important than the maturities seen in Q1 are the $4.2 billion it has scheduled to mature in the second-quarter of 2017, which could make ongoing market growth difficult to achieve for the next few months.

However, Aon expects that any new catastrophe bonds will be met with strong appetite from investors, as “Investor capacity remains poised to replace maturing capital.”

Aon notes that downward pressure was seen in cat bond spreads in Q1 2017, a trend it says was “particularly pronounced” for repeat and well-known cat bond sponsors.

The strong investor demand and willingness to reduce spreads meant that sponsors could capitalise on strong market demand to upsize transaction sizes during the quarter.

Aon Securities preliminary view on the catastrophe bond market for 2017 was for issuance of $8 billion or greater and it seems the market is well on its way.

As of today Artemis has recorded $4.48 billion of completed new cat bond issuance in 2017 and once the entire pipeline of deals currently in the market has completed that total will reach almost $6.7 billion, more details and charts can be found over on the Artemis Dashboard.

Aon Securtities said that Q2 2017 issuance is expected to match the brisk pace of Q1 and that looking ahead strong demand for new cat bonds from investors means that their capacity is ready replace the expected maturities in the quarter.

Beyond the second-quarter of this year the rate of maturities will slow down somewhat, giving the catastrophe bond market a chance to catch up and grow in outright size once again.

If indeed the cat bond market can manage $8 billion of issuance in 2017, which seems almost guaranteed given we’re almost at $6.7 billion already, we could well end the year with more new records being set.

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