Strong Q2 showed utility of cat bonds, robustness of ILS: Aon Securities

The way the insurance-linked securities market has bounced back from the hurricane losses of 2017 to achieve further growth into 2018 amid strong catastrophe bond issuance, is evidence of the continued utility of cat bonds and the robustness of ILS, according to Aon Securities.

In the latest quarterly catastrophe bond market report from Aon Securities, the investment banking and ILS focused division of the insurance and reinsurance broker, the firm highlights the strength shown by the ILS market in bouncing back from its largest losses ever.

Aon Securities highlights just over $4 billion of new catastrophe bond issuance in its latest report, some way below the $5.15 billion of issuance we featured in Artemis’ Q2 2018 cat bond market report.

However, Aon Securities only features the 144A more broadly marketed deals and does not include the mortgage ILS deals, hence it’s figures fall short of ours.

But the conclusions are the same, an active second-quarter as the ILS market and its investors continued to demonstrate their appetite and ability to allocate increasing amounts of capital to property catastrophe insurance and reinsurance risks.

Discussing the second-quarter of 2018’s catastrophe bond issuance Aon Securities said, “Given the 2017 US wind loss events, this strong result evidences the continued utility of catastrophe bonds for sponsors and investors alike.”

It’s true that we’ve seen expansion in the sponsor base for ILS this year and also in the investor base, making it clear that an increasing number of ceding companies appreciate ILS and catastrophe bonds as part of their reinsurance or retrocessional risk transfer, while at the same time the number of investors with an appreciation and liking for the ILS asset class has also continued to expand.

This increased issuance combined with growing investor interest and appetite is what has driven the amount of alternative capital in the reinsurance market to a new high this year, while at the same time driving cat bond issuance to a point where another record year is now almost certain.

The rebound in cat bond activity and continued growth of ILS, “Demonstrates the continued robustness of the insurance-linked securities sector,” Aon Securities said.

Issuance outpaced maturities by 25% during the second-quarter, helping to drive further outright growth in catastrophe bonds, according to the firm and as a result Aon Securities’ measure of outstanding cat bonds and related ILS reached over $30 billion at the middle of the year (this is now over $36 billion by Artemis’ reckoning).

Pricing of cat bonds during Q2 2018 dropped below that seen before the major catastrophes of 2017, further demonstrating the efficiency of ILS capital and the appetite of investors to support re/insurers risk transfer needs.

The two utility of catastrophe bonds for reinsurance risk transfer continues to be demonstrated, with a broadening of the remit of the coverage, new sponsors, new risks and perils all being brought to market so far in 2018.

At the same time, the robustness of ILS, in the structures ability to payout cleanly and the investors ability to recapitalise and trade forwards, also continues to be demonstrated, not least by the way ILS funds and vehicles have dealt with ongoing loss creep from last year’s hurricane Irma so far this year.

For full details of catastrophe bond and related insurance-linked securities (ILS) market issuance every quarter please visit Artemis’ quarterly cat bond market report archive and download them all.

Don’t forget to check out our Cat Bond Market Dashboard as well, for a snapshot of the ILS market, and our range of catastrophe bond market charts and data visualisations which allow you to analyse the outstanding market in more detail.

Note: Artemis’ data on catastrophe bond issuance includes every transaction we can source information on, including private deals, new diversifying insurance perils, and the usual 144A broadly marketed property catastrophe issues. Hence our figures are typically higher than those quoted by reinsurance broker reports, but we feel this offers a holistic look at market activity.