Cat bond market momentum could lead to record year: Aon

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Positive momentum in the catastrophe bond market could drive issuance higher and lead to a record year in 2021, according to insurance and reinsurance broker Aon.

record-imageAfter a busy first-half of the year for new catastrophe bonds, the market for insurance-linked securities (ILS) is poised to break records in 2021 it seems, with appetite from investors persisting and interest from ceding companies remaining high as well.

In its latest reinsurance market report, broker Aon explained that strong inflows into the ILS asset class have helped to close out a “very strong” first-half of 2021.

As we explained yesterday, Aon’s latest data shows that ILS capital, or alternative reinsurance capital, expanded further and continued its recovery back to reach $96 billion by the end of Q1, not far short of its all-time-high or $97 billion (on Aon’s numbers).

Some of the capital inflows went to catastrophe bond funds, helping to support the strong issuance pipeline of cat bonds that we’ve been seeing.

As we explained before, the UCITS catastrophe bond fund segment has been growing particularly fast of late, with combined assets across this segment rising roughly 58% in just one year.

Aon explained how first-half cat bond issuance went, saying that, “The market demonstrated strength on strength, combining near record issuance volume with spread reductions of 10 to 15 percent compared to mid-year 2020. First half issuance this year totaled USD8.39 billion, just shy of the record set in 2017.”

As well as growth, Aon also noted that “this positive capacity and pricing environment has led to impressive breadth across the ILS market.”

“A diverse set of Sponsors, including corporates, insurers, reinsurers and government entities have found value in the ILS market across a broad range of perils, geographies, trigger types and expected loss levels,” Aon further explained.

Then the broker gave a forecast for the rest of this year.

Saying, “The positive market momentum, combined with over USD3.5 billion maturing in the second half of 2021, could lead to record issuance volume for the full year.”

Paul Schultz, CEO of Aon Securities discussed prospects for the catastrophe bond market for the rest of this year at our recent ILS Asia conference. you can view his keynote speech and the live Q&A held afterwards here.

Access every edition of our quarterly catastrophe bond and ILS market report here.

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