Strong capital markets growth drives Q2 reinsurance revenues for Aon

by Artemis on August 4, 2017

The bumper issuance of new catastrophe bonds and continued uptick in other insurance-linked securities (ILS) activity has helped to drive organic revenues higher in the reinsurance segment for broker Aon, as its capital market activities continue to augment the segments growth.

Capital markets activities can be particularly lumpy for brokers, with their revenues from ILS and catastrophe bond transactions driven by issuance activity trends and also the reinsurance renewal cycle to a degree.

With catastrophe bond issuance having beaten all records in the second-quarter of 2017, driving the year’s issuance above $10 billion for the first time in the market’s history, Aon has benefitted given the brokers scale and overall reinsurance market reach.

Reporting its second-quarter 2017 results today, Aon said that the reinsurance unit recorded impressive growth in organic revenues of 6%, with strong growth in the capital markets business driving the way.

The Aon Securities business, in ILS, catastrophe bonds, and other capital markets reinsurance deals, will have been responsible for a significant portion of this uplift, as market activity will have driven its fee income significantly higher.

Aon explained today that its reinsurance segment saw; “Organic revenue increased 6% compared to the prior year period driven by strong growth in capital markets, as well as growth in facultative placements and net new business generation in treaty, partially offset by a modest unfavorable market impact globally.”

Aon was involved in 9 catastrophe bonds during the second-quarter, out of 29 transactions completed and issued during the period. This is up significantly on just 1 transaction worked on in Q2 2016, according to data from the Artemis Deal Directory.

Aon leads our cat bond issuance banks and broker leaderboard, having worked in some capacity on $13 billion of the outstanding market issuance at this time.

It won’t just be catastrophe bond activity either, as Aon will also have benefitted from the growing assets under management at ILS fund managers, which saw a significant volume of private ILS and collateralized reinsurance being transacted in the second-quarter, which again the broker plays a role in facilitating.

Aon isn’t the only broker to benefit from recent trends either. Both Guy Carpenter’s and Swiss Re’s capital market teams have increased their transaction volume, as a result of the bumper issuance in Q2, which no doubt drove the pairs fees earned from capital market reinsurance activities higher as well.

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