11 September 2015 Alternative Risk Transfer

Cat bond coverage hits $24bn year-end high: Aon Securities

Catastrophe bond coverage has reached a $24 billion year-end high, despite a decrease in catastrophe bond issuance from last year.

This is according to Aon Securities, the investment banking division of Aon Benfield, in its latest report which analyses the key trends witnessed in the 12 months to June 30, 2015 in the insurance-linked securities (ILS) market.

Annual cat bond issuance reached $7 billion, a decrease on the record-breaking prior year of $9.4 billion, but still the third highest annual issuance in the sector’s history.

Throughout the period, 25 transactions closed, including two life and health transactions, and $5.9 billion of bonds matured.

According to Aon Securities, US exposures continued to dominate the catastrophe bond market, with 22 of the 25 transactions comprising US risk in some capacity. Dedicated Japan risk was covered in two transactions and stand-alone Europe risk in one transaction.

A number of new records were set in the market, with a record first quarter issuance of $1.7 billion across eight transactions.

Additionally, there was a record average transaction size of $279 million for any 12-month period ending June 30 and a record number of catastrophe bonds on-risk ($23.5 billion) for a June 30 period end.

Over the year, eight quota share sidecar transactions closed, totalling $955 million for the seven sidecars that disclosed their sizes and the ILW market increased from $3.5 billion to an estimated $4 billion.

Paul Schultz, chief executive officer of Aon Securities, said: “The decrease in catastrophe bond issuance during the 12 months was in part due to the reaction of the traditional and collateralised reinsurance players to the heightened competition from the catastrophe bond market.

“This reduction was offset by a sizeable increase in collateralised reinsurance participation. We forecast $6 billion to $7 billion in ILS issuance during 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.”

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