Aon Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, said that total catastrophe bond issuance for calendar year 2015 reached US$6.9 billion, down from US$8.3 billion in 2014.
Aon Securities released its year-end 2015 update on the insurance-linked securities (ILS) sector on Thursday. The report, Insurance-Linked Securities Year-End 2015 Update, added that the US$6.9 billion issuance included a record first quarter issuance of US$1.7 billion. The annual issuance total comprised US$6.3 billion of transactions relating to property catastrophe exposures, compared to US$8 billion in 2014. [click image below to enlarge]
The second half of 2015 saw the closing of 10 cat bonds totalling US$2.2 billion, four of which were based on parametric triggers, Aon Securities noted in a statement. Parametric triggers are a feature that had been scarce in the market in recent years, but which are currently proving attractive to non-insurance corporations, a key segment for potential growth in the ILS market.
At year-end, total catastrophe bonds on-risk stood at US$24.4 billion, representing a new all-time market high, as had been the case at every year-end since 2012, the statement said.
Maturing cat bonds during 2015 totalled US$6.8 billion – also a market high – which resulted in a net market increase as annual issuance continued to outpace maturities.
“Good momentum was maintained in the ILS sector during 2015 amid an environment of increased competition with traditional insurance and reinsurance solutions,” commented Paul Schultz, chief executive officer of Aon Securities, in the statement. “This strong level of activity ensured that at year-end, catastrophe bonds on-risk stood at an all-time high. During the year we were pleased to see the growing acceptance of ILS products by corporations, which are tending to opt for fronted and parametric solutions for their inaugural issuance. These solutions have the advantage of a more rapid loss recovery.”
The report noted that Everest Reinsurance Company returned to the cat bond market with its third transaction under the Kilimanjaro Re Limited program. The Series 2015-1 Class D and E notes provide North America named storm (expanded to include the entire United States, Canada and Puerto Rico) and earthquake coverage on an industry index per occurrence basis. The US$625 million issuance brings total cat bond capacity secured by Everest Re to US$1.58 billion and ranks the property and casualty (re)insurer second overall in total outstanding limit as at year-end 2015, all in just two years of issuance, the report said.
Aon Securities also said that it expects U.S. property peak peril risks, such as Florida hurricane and California earthquake, to continue to dominate the cat bond market in 2016, in alignment with the global (re)insurance market.
Aon Securities’ preliminary view for 2016 primary cat bond issuance is US$6 to 7 billion.