Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Significant catastrophe bond issuance expected in 2020: Aon


Significant issuance of property catastrophe bonds is expected in 2020, with a large amount of maturities likely to drive renewal issues, according to broker Aon.

payments-money-cash-ils-reinsuranceIn its latest reinsurance market report, Aon explains that loss activity over the last few years “had a relatively modest impact on this area of the market, given that the issue has been one of frequency rather than severity.”

While Aon estimates that ultimate catastrophe bond losses from recent catastrophe events may reach US $1 billion, this has largely been experienced in Florida specific deals and aggregate covers.

Issuance fell in 2019, as we reported in our recent cat bond and related ILS market report, but Aon believes that this was principally due to their being lower maturities of existing bonds, something set to change in 2020.

Just in the first-half of this year there are around $7 billion of cat bond maturities expected, which Aon believes will drive significant renewal issuance.

We’ve seen some returns to the market in recent months, such as RenaissanceRe with its just completed Mona Lisa Re 2020-1 cat bond, Everest Re with its latest Kilimanjaro Re deals and AXA XL with a new Galileo cat bond, plus Swiss Re with its Matterhorn, Hannover Re with 3264 Re and Nephila Capital with Stratosphere Re.

These deals suggest we could see more returning sponsors come back to the catastrophe bond market in 2020, as pricing and execution looks particularly attractive, especially compared to the traditional retrocessional reinsurance market.

Completed issuance in the first-quarter of the year has already reached $1.1 billion and there is at least another $400 million to come from three deals, with both 3264 Re from Hannover Re and Stratosphere Re from Nephila having a good chance of upsizing further.

We’re told there are more cat bond deals to come in Q1, suggesting that we could see a particularly strong quarter to kick off the new year.

While Aon expects the denting of investor confidence after recent loss years to continue affecting collateralized reinsurance and proportional ILS deals, the cat bond market is likely to see growing investor interest it seems, as it moves beyond recent losses.

“Significant levels of activity are expected in the property catastrophe bond sector,” Aon explains.

The state of the retrocession market could assist, as reinsurers look to find value wherever they can to avoid higher costs and a lack of capacity in the traditional market. The catastrophe bond market may be a solution for some, which could result in some new sponsors perhaps.

Recent deals have shown that demand for aggregate retro cat bonds using industry loss triggers has increased, which is clearly due to the issues that affected the traditional and collateralized retro market renewal.

New inflows have been seen in the catastrophe bond fund market towards the end of 2019 and this could continue if new issuance is sufficient to enable ILS fund managers to take in more capital.

Download and read copies of our free quarterly catastrophe bond market reports.

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