Alternative Capital Now 20% of Cat Re Total: Aon Benfield

September 11, 2014

We’ve heard for a while now that alternative capital is increasing its share of the overall catastrophe reinsurance market. Aon Benfield Securities estimates its stake has now reached 20 percent of the total.

The investment banking division of global reinsurance intermediary and capital advisor Aon Benfield noted this in a new report that looked at key industry trends over the 12-month period ending June 30, 2014. Dubbed “Capital Revolution – Alternative Markets Fuel Dynamic Environment,” the report concluded that the high volume of catastrophe bonds along with 11 sidecar transactions worth $1.4 billion, plus collateralized reinsurance vehicles, helped alternative capital to grow its share of the broader catastrophe reinsurance market.

“The 12-month period under review was one of the strongest ever for the [insurance-linked securities] sector and wider alternative capital markets,” Paul Schultz, CEO of Aon Benfield Securities, said in a statement. ”

He noted that “sponsors received improved terms including increases in catastrophe bond maturity periods and a continued decrease in interest spreads to historical lows.” This, plus improvements in pricing as well as terms and conditions, helped attract “a record number of new sponsors to the market,” Schultz said.

Aon Benfield Securities noted that 24 catastrophe bonds covering U.S. perils were issued during the 12 months ending June 30, 2014, and 5 were issued with Europe exposures. The period also saw 4 catastrophe bonds covering Japan perils issued during the period (versus none during the same 12-month timeframe a year ago). As well, 70 percent of property catastrophe bonds used indemnity triggers covering regions including Australia, Europe, Japan and North America, according to the report.

As of June 30, 2014, total catastrophe bonds outstanding came in at $22.4 billion, a record high and $4.6 billion higher than the same period last year, Aon Benfield Securities said.

During the 12-month period, Aon Benfield tracked a record issuance of catastrophe bonds during Q2 – $4.5 billion over 12 transactions. For the first six months of the year, catastrophe bond issuance involved $5.9 million of transactions brought to market. That’s almost 50 percent higher than the same period a year ago, according to the report.

Source: Aon Benfield Securities