Cat bond market has shown its resilience: Aon
Following record cat bond issuance in 2017 and the HIM losses, the ILS market has proved its resilience over the last 12 months and is continuing to strengthen well into 2018.
This was discussed by a panel at Aon Reinsurance Solutions’ 2018 press conference at the Monte Carlo Rendez-Vous.
Speakers included Paul Schultz, CEO of Aon Securities; Andy Marcell, CEO of Reinsurance Solutions; Nick Frankland, UK CEO of Reinsurance Solutions; and Mike Van Slooten, co-head of Aon’s Market Analysis.
As of June 30, 2018, the catastrophe bond market has reached a record for the sector, with the cat bond limit on-risk reaching $30 billion, an increase of $4.2 billion year on year.
Aon produces an aggregate of the performance of the reinsurance market every six months to highlight trends in the industry.
Some of the key finds included the high levels of excess capital still in the industry, however, Van Slooten pointed out that when looking at the first half of 2018, capital was slightly down.
Interest rates are also beginning to rise in the US, which has an impact on reported investment returns on profit and loss accounts. It also affects capital positions in some cases.
“Rising interest rates is something we have been waiting for since the financial crisis,” said Van Slooten. “It will be interesting to see how it plays out going forward.”
He added that there are increasing variations of results across the industry, which is conducive to M&A activity.
“One big theme of this conference will be the large number of deals we’ve been seeing,” he said.
Schultz also gave an overview of the ILS sector, which he said in 2017 was largely defined by HIM and the response by the market.
“When we take a high-level overview, we think it was extremely orderly. The market was paying claims,” he said.
“We keep talking about alternative capital passing tests. We can move past that dialogue; it’s definitely part of the business.”
Schultz also noted that the level of capital that supports the collateralised market has increased significantly: $98 billion as of June 30, a third of which is deployed into cat bonds.
“When we look at cat bonds, the market did reopen quite promptly following HIM events,” he added.
