A very interesting insurance linked securities (ILS) and catastrophe bond market statistic was revealed by Aon Benfield Securities in its latest quarterly ILS market report; the 12 months ILS and cat bond issuance total to the end of Q1 was one of the highest we’ve seen.
The trailing 12 month total for ILS and catastrophe bond issuance up to the 31st March 2014 was $8.2 billion, according to the capital market broker. In fact, by our reckoning and based on catastrophe bond and ILS data from the Artemis Deal Directory the total issuance in the 12 months to the end of Q1 2014 stood at $8.27 billion.
What is particularly interesting about this figure, aside from the fact that it shows us that we have a very healthy ILS and cat bond issuance market right now, is the fact that the highest annual issuance (12 months January to December) figure we have recorded was $8.24 billion in 2007, meaning that the 12 months to the end of March saw the highest 12 months volume of ILS issuance ever recorded.
It’s not the highest trailing 12 month ILS and cat bond issuance total we’ve seen, there was a slightly higher period in late 2006 to 2007 which gives a 12 month trailing issuance total of just over $8.5 billion, but nonetheless it is a very impressive number.
That is a pretty staggering figure and shows the acceleration in the primary ILS market over the last year or so. This trailing figure may grow even higher as we go through this year, particularly once we get to the middle of the year with over $2 billion of second-quarter cat bonds in the market already.
Paul Schultz, Chief Executive Officer of Aon Benfield Securities, commented; “The ILS market continued to show strength as the first quarter of 2014 came to a close. New issuance demand was strong, as investors chose to redeploy capital into catastrophe bonds, and new capital continued to flow into ILS strategies. Many transactions increased in issuance size and priced at the lower end of, or below, interest spread guidance.”
On Aon Benfield Securities numbers the first-quarter of 2014 saw 110% greater issuance than the first-quarter of 2013, but issuance failed to keep up with maturities causing the outstanding size of the market to drop a little.
Pricing conditions for new catastrophe bonds and ILS reached new lows, with strong demand from both sponsors for coverage and investors for new capital allocation opportunities helping to stimulate good deal flow and attractive terms.
Particularly noteworthy was the spread reduction on the Merna Re V catastrophe bond, Aon Benfield Securities noted, which saw a 20% year-on-year pricing decline compared to State Farm’s previous cat bond transaction and the lowest spread for a non-investment grade bond in six years.
Aon Benfield Securities expects investor demand to remain robust for ILS and catastrophe bonds through the second-quarter, which will help to keep deal-flow coming in the primary market and ensure that secondary market conditions remain competitive.
You can access the full report from Aon Benfield Securities in PDF format here.
Q1 2014 Catastrophe Bond & ILS Market Report – A Record Quarter
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the first-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014. Download your copy here.