Aon Securities believes that the record catastrophe bond issuance reached in 2017 is not necessarily a one-time deal. The firm said it predicts issuance will follow a similar momentum in 2018.
Existing sponsors renewing maturing capacity and the expectation of new sponsors and investors coming into the ILS market should help keep the pace going, Aon Securities said. Its forecast for catastrophe bond issuance for 2018 hits between $8 billion and $9 billion. That’s potentially lower than the $10.7 billion record set in 2017, but close to or above the previous record of $8.38 billion set in 2007.
“The ILS market had a very strong 2017, with several new records being set and alternative capital rising to new heights in the reinsurance marketplace,” Aon Securities CEO Paul Schultz said in prepared remarks. “We expect to see a gradual broadening of the scope of ILS products, making them an even more common risk transfer tool for [insurers and reinsurers], with continued support from investors for this diversifying asset class.”
Aon Securities’ year-end report on insurance linked securities found that there were 35 catastrophe bonds issued by 31 different sponsors during the year, hitting a total capacity of $10.7 billion, a first-time achievement.
That estimate is similar to a $10.5 billion catastrophe bond tally for 2017 from the Property Claims Services Unit of Verisk Insurance Solutions. PCS tallied 36 cat bond transactions for the year.
The $10.7 billion catastrophe bond take for 2017 surpasses the previous Aon Securities’-tallied record of $8.38 billion reached in 2007. According to the firm, the 2017 market passed the old record by the end of June 2017, after a Q1 issuance of $2.2 billion and a Q2 issuance of $6.4 billion.
After the first half of 2017 hit $8.6 billion in catastrophe bond issuance, the third quarter produced $800,000, and another $1.3 billion came through in Q4.
The second half of 2017 presented a challenge to insurers and reinsurers alike in terms of the hurricanes, wildfires and earthquakes that struck in force. Aon Securities noted that those catastrophe events impacted pricing on some catastrophe bonds but added the market overcame those challenges by the end of 2017 as new capital entered the sector.
As of the end of 2017, the capacity of all catastrophe bonds active in the market (on-risk catastrophe bond) reached $25.7 billion, something that Aon Securities said is another new record. Alternative capital, meanwhile, had reached a record $89 billion.
Aon Securities is the investment banking division of Aon Benfield, the global reinsurance intermediary and capital advisor.
Source: Aon Securities/Aon Benfield