“Significant expansion” in the ILS market in Q2 2017 – Paul Schultz, Aon

The insurance-linked securities and catastrophe bond market saw a “significant expansion” during the second-quarter of 2017, as a number of factors stimulated record levels of new transactions and drove annual issuance to a record high, according to Paul Schultz of Aon Securities.

Schultz, Chief Executive Officer of Aon Securities, commented on Q2 2017 cat bond issuance; “During the second quarter we saw a large amount of maturing limit being renewed, which contributed to the record-breaking issuance figures.

“However, there was still a significant expansion in the overall market, as a result of new sponsors, favorable pricing, and the ability of alternative capital to provide high levels of market capacity.”

Strong investor demand led to numerous catastrophe bond issues upsizing from their initial guidance, while pricing often came in well below the level deals were initially marketed to investors at.

The broker sees this as an important trend, saying; “Of significance is the downward pressure seen on interest spreads and the ability of sponsors to capitalize on strong market demand to significantly upsize transaction sizes to secure meaningful capacity.”

That bodes well for the rest of the year, as ILS capital levels remain at a high and investors are showing continued appetite for the few deals coming to market in Q3 so far.

Aon Securities counted $6.38 billion if new cat bond issuance across 20 transactions, setting a new record for quarterly issuance that eclipsed the previous record of $4.49 billion it saw as set in Q2 2014.

Of particular note Aon highlights that six different public entities sponsored catastrophe bonds during the Q2 period, contributing $2.2 billion to the quarterly total.

This falls a little short of Artemis’ figure of $7 billion of new risk capital brought to market from 29 deals, with the difference largely being the private transactions we also include in our Deal Directory.

Aon Securities puts first-half 2017 issuance at $8.55 billion, what it calls a historical high as this is now the highest annual issuance figure the broker has recorded.

Additionally, Aon Securities also has the outstanding market at a new high as well of $26.12 billion, again short of Artemis’ figure of almost $29.6 billion at this time (due to our inclusion of private, life and other risk category deals).

Whether numbers differ or not, the main story is that the ILS and catastrophe bond market has witnessed a historic period of growth this year, which all market participants will hope to continue into the latter stages of the year as the final quarters deal pipeline begins to become clearer.