26 April 2018Alternative Risk Transfer

Cat bond issuance reaches record $3.58bn in Q1

Catastrophe bond issuance during the first quarter of 2018 stood at $3.58 billion across 10 transactions – a new record for first quarter issuance, easily surpassing the 2016 and 2017 issuance volumes of approximately $2.2 billion, according to a new Insurance-Linked Securities Q1 2018 Update by Aon.

Repeat sponsors led the first quarter in terms of issuance volume, sponsoring $2.28 billion of property catastrophe bonds.

Meanwhile, maturing property catastrophe bonds totalled $1.37 billion during the period – which were not only easily replaced, but also significantly expanded, bringing the market to a new high of $29.0 billion of catastrophe bonds on-risk as at March 31, 2018, of which $27.3 billion were property transactions, according to the report.

The first quarter saw the ILS market expand into new areas – both in terms of geography and perils covered, the report added.

In February, a multi-country catastrophe bond was launched on behalf of the World Bank, providing coverage for Latin America through the International Bank for Reconstruction and Development (“IBRD”) CAR programme issuances.

Meanwhile, the Sanders Re catastrophe bond on behalf of insurer Allstate comprised coverage that was consistent with a traditional reinsurance placement and included a unique structural feature, with coverage being both on a per-occurrence and annual aggregate basis, in two separate sections of a single class of notes.

“The first quarter catastrophe bond issuance figure has set a positive tone for the remainder of 2018,” said Aon Securities CEO Paul Schultz. “Following the potential losses that could have been incurred from the series of 2017 natural disaster events, investors in this sector could easily have taken a ‘wait-and-see’ approach. However, given the record levels of issuance seen during the first three months of the year, it is clear they are aware of the inherent value of ILS and are comfortable with the associated risks.”

During the first quarter of 2018, the Aon All Bond and US hurricane indices posted returns of 1.45 percent and -1.17 percent respectively. The negative return for the US Hurricane index during the period was due to an increase in losses from Hurricane Irma for one of the bonds in the market.

The Aon All Bond and US Hurricane Bond indices produced gains of 1.81 percent and 1.56 percent respectively. The All Bond index outperformed all comparable benchmarks for the quarter, as all benchmarks suffered negative returns.

Aon Securities forecasts around $9 billion in catastrophe bond issuance for 2018.

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