Capital market transactions help Aon reinsurance revenue growth


Activities related to capital market transactions such as catastrophe bonds in the first-quarter of 2018 added to strong reinsurance broking revenue growth for Aon plc, as the investment banking side of the broking business continued to drive attractive fees.

The Aon Securities unit has a prolific practice in the insurance-linked securities (ILS) market, acting as structuring agents, or bookrunners, for a significant number of cat bond transactions and currently sitting at the top of our ILS investment banking and broking leaderboard.

Reporting its first-quarter results today, Aon announced that its reinsurance broking organic revenues had grown by 6%, helped by the capital markets transactions completed by Aon Securities during the period.

Aon noted that its Aon Securities unit, as part of the reinsurance solutions division, successfully helped the World Bank bring a huge $1.4 billion, multi-country set of transactions to market during the period, saying this was “a transaction that brings emergency funding and disaster support to certain Latin American countries if and when an earthquake occurs.”

That is of course the catastrophe bond for the Pacific Alliance nations of Chile, Colombia, Peru and Mexico, which brought three new sovereign sponsors to the catastrophe bond market, thanks to the assistance of Aon Securities this year.

Reported revenues for the reinsurance division at Aon, which includes Aon Benfield as well as Aon Securities, grew dramatically, as a GAAP accounting change lifted revenues by 100% year-on-year to $742 million.

But the 6% organic revenue growth in the reinsurance division reflects strong progress at Aon, across the Aon Benfield and Aon Securities units once again, with it likely that broking to collateralized reinsurance markets such as ILS funds also played a significant role here.

The broker said, “Reinsurance Solutions organic revenue increased 6% compared to the prior year period driven by strong growth across every major product line, including particular strength in treaty placements driven by net new business generation and a modest favorable market impact, as well as growth in both facultative placements and capital markets transactions.”

The growth in capital market transactions saw Aon Securities acting on a total of eight catastrophe bond transactions during the first-quarter of 2018, which together amounted to $2.76 billion of the first-quarter 2018 cat bond issuance, more than half of the $4.24 billion of issuance we recorded.

In total we recorded 17 transactions during the quarter, but information on the structuring or bookrunning brokers was only available on 12, hence with 8 cat bond transactions worked on (that we know of), Aon Securities contributed to the majority in the period.

CEO of Aon Greg Case commented on the quarter, “Our first quarter results reflect a strong start to the year with positive performance across each of our key metrics, highlighted by strong organic revenue growth in Reinsurance and Commercial Risk Solutions, substantial operational improvement, 26% growth in earnings per share and double-digit adjusted free cash flow growth.”

The capital market business provides valuable fee income for the major brokers and reinsurer owned capital markets units and as the ILS market grows, catastrophe bond issuance increases and the evolution of reinsurance towards third-party capital financing continues, the brokers like Aon stand very well positioned to capitalise on this.

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