Catastrophe bond coverage hits US$23.5 billion year-end high: Aon Securities

Aon Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, has announced that in the 12 months to June 30, there was a record number of catastrophe bonds on risk – US$23.5 billion.

On Thursday, Aon Securities released its annual report on the insurance-linked securities (ILS) sector, which analyses the key trends witnessed in the 12 months to June 30, and also provides an overview of related markets and of re/insurance mergers and acquisitions activity.

The report, Alternative Markets Adapt to Competitive Landscape, revealed that annual cat bond issuance reached $US7 billion – a decrease on the record-breaking prior year (US$9.4 billion), yet still the third highest annual issuance in the sector’s history, Aon Securities said in a press release.

Twenty-five transactions – including two life/health transactions – closed during the period, while US$5.9 billion of bonds matured.

In addition to the record number of cat bonds on-risk for the June 30 period end, the 12 months under review also saw the setting of two other records in the ILS market: a record first quarter issuance of US$1.7 billion across eight transactions and a record average transaction size of US$279 million for any 12-month period ending June 30. [click image below to enlarge]

Aon Securities noted that exposures in the United States continued to dominate the cat bond market, with 22 of the 25 transactions comprising U.S. risk “in some capacity.” Outside of the U.S., dedicated Japan risk was covered in two transactions, and stand-alone Europe risk in one transaction.

“The decrease in catastrophe bond issuance during the 12 months was in part due to the reaction of the traditional and collateralized reinsurance players to the heightened competition from the catastrophe bond market,” said Paul Schultz, chief executive officer of Aon Securities, in the press release. “This reduction was offset by a sizeable increase in collateralized reinsurance participation.”

He noted that Aon Securities forecast US$6 billion to US$7 billion in ILS issuance during the calendar year 2015, and “expect current pricing trends to continue into 2016 in the absence of substantial catastrophic events that disrupt the supply of capital.”