The slowdown that has been experienced in primary catastrophe bond issuance since March when the huge earthquake struck Japan is going to impact revenues for some of the companies who participate in cat bond deals when they report their Q2 2011 earnings. After an active year of issuance in 2010 the noticeable slowdown this year is bound to impact year-on-year revenues for many market participants, particularly brokers who act as arrangers, bookrunners and structurers on transactions.
The first company to report who are an active player in the issuance market is Aon who today published their quarterly results. They reported that their reinsurance arm Aon Benfield suffered a 2% decline in organic revenue due to a decline in capital markets transactions and advisory business.
Given the fact that Q2 2010 was a busy point in the cat bond markets history and Q2 is generally accepted to be one of the busiest quarters every year, the fact that this year was so slow due to heavy losses and new risk models is bound to cause a decline in revenue. Being involved in the issuance of a cat bond transaction is a profitable business and those inflows of cash from capital markets transactions will have been missed.
Aon report that some of the decline was offset by growth in global treaty placements. Considering the flight to traditional reinsurance among many regular cat bond issuers during Q2 this again is no surprise. However, the fact that Aon didn’t manage to make up all the revenue decline by placing additional traditional reinsurance business perhaps shows how profitable capital markets intermediary business can be?
We fully expect other companies to report a year-on-year decline in capital markets intermediary revenues for Q2.