Cat bonds should hold March momentum to mop up mass maturities: Aon

The catastrophe bond market could retain new momentum picked up in March for the coming months as returns look strong and the market works to mop up maturing sums,  Aon said in a quarterly report on the market.

“All signs point to continued market growth as we head into the spring and summer months,” authors wrote of an issuance pipeline they believe should prove “extremely robust.”

The market has $4.4 billion in cat bonds maturing over the course of Q2, Aon noted.

The Q1 primary market may have started the year in a rather quiet extension of Q4 2022, with two primary deals apiece for January and February, but the ensuing eight deals in March proved the post-Ian turnaround.

Sponsors secured average deals sizes some 67% higher than those seen in H2 2022. Pricing has "tightened" from end-2022 peaks.

Investors took notice of the more attractive spreads to help give momentum to the primary market in March, a move which spilled over into stronger bids and a "heavily one sided" secondary market.

Wider risk spreads plus the impact of higher interest rates on the return on collateral has "meaningfully improved the total return profile of catastrophe bonds during 2023."

But good news in the ILS space is restricted to that story of rising cat bond issuance. Collateralized reinsurance "remains somewhat constrained" and investors in sidecar deals appear more devoted to taking higher margin on existing deals than putting up new money in new deals.

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