Moving forward

“The summer was not that active for cat bonds, I don’t think that anything material happened from the first half of the year,” says Paul Schultz, CEO, Aon Securities.

The themes of the first part of the year were probably greater volume in collateralised products versus cat bonds, and greater assets deployed for mangers as a whole.

“That’s what we’re likely to see moving forward as well: cat bond volume down, not necessarily a significant decline but probably not increasing either, and assets being deployed more on other collateralised strategies.”

“If a client is able to achieve similar coverage terms with a simpler documentation process associated with cat bonds that is going to affect transaction volume.”

“On a comparative basis if a client is able to achieve similar coverage terms with a simpler documentation process associated with cat bonds that is going to affect transaction volume.”

Asked what has been driving this slowdown, Schultz says that it was being driven primarily by clients’ preference as they seek products that are just a little easier to transact. If clients believe they can get a similar result from a slightly different product they have been taking the easier path with simpler execution.

“That’s a trend we’re probably going to see extend into 2016. Some of that was driven by a halt in some of the rate declines we’ve seen in the cat bond markets. As we reflect, the cat bond market had exceptional growth due in part to the cost of capital in that marketplace and growth is more normalised now that rate declines have tapered off or even stopped,” Schultz says.

On ILS-related conversations at the Monte Carlo Rendez-Vous Schultz replies: “My hunch would be that the topic of alternative capital is probably not the central theme this year as it has been over the last several. Certainly two to three years ago it was all that was talked about at Monte Carlo. Last year it was still a big topic, but maybe a little bit less than the previous years.

“To me the main topic will be growth, and I think that alternative capital certainly has a role to play in the growth theme. We’ve seen consolidation in the market and clients are much more focused on the growth agenda and where do we go in the next couple of years.

“Alternative capital will certainly be a part of that discussion and strategy—I just don’t think that it’s going to be the only topic this year.”