Aon: Catastrophe Bond Sector Celebrates 25th Anniversary With Record Issuance

January 26, 2022

Aon plc data revealed that 2021 catastrophe bond issuance reached $12.5 billion, with more than $32 billion of bonds now active in the market. This record annual issuance surpasses the previous record of $11 billion set in 2020.

The latest figure coincides with the 25th anniversary of the catastrophe bond sector—a period characterized by steady growth, according to Aon’s data, with more than $117 billion of catastrophe bonds issued over the past 25 years. In 2021, Aon captured a market-leading 54 percent of issuances. Since the market’s inception in 1997, Aon Securities has had a 39 percent share of issuances over the period. Aon Securities actively participated in the placement of $7 billion of 2021’s issuance total.

“In addition to growth in scale, catastrophe bonds have evolved to cover a vast array of perils, geographies, triggers and sponsors through some of the most innovative risk transfer structures, and have demonstrated their ability to provide protection for property, casualty, life and health risks,” said Aon Securities CEO Paul Schultz in an Aon press release.

The catastrophe bond sector originated in December 1996 with the launch of the George Town Re Ltd. bond. Since its inception, the sector has evolved to meet numerous capital challenges arising from insurance companies, reinsurance companies, the public sector and large commercial organizations, according to the release.

During its history, the market has provided a source of capital to re/insurers, offering diversification from traditional re/insurance capital and responding to many of the most material catastrophe events, including Hurricane Katrina, the Tohoku earthquake, Hurricane Irma and the more recent COVID-19 pandemic.

Government insurance schemes continue to rely on the capital markets to provide diversifying capital to help support their growth and resiliency efforts. Insurance companies have helped pave the way for the broader insurance market to integrate catastrophe bonds into their capital management strategies, and reinsurers have helped demonstrate the ability for catastrophe bonds to anchor retrocessional programs, the release said.

More recently, sponsorship has expanded to governments, from municipalities to nations seeking to close natural catastrophe protection gaps. Further, global corporate entities across entertainment, real estate, technology and other sectors are sponsoring catastrophe bonds to integrate the value of a new capital pool into their broader executive, risk management and environmental, social and governance (ESG) objectives.

“The expansion of sponsors, the development of structures and the innovation of the sector provides tremendous confidence in the ability for the capital markets to continue to meet the evolving risk management needs of tomorrow while also helping to address the needs of the underserved,” said Richard Pennay, CEO of insurance-linked securities for Aon Securities, in the release.

Schultz agreed, pointing to insurance, reinsurance, corporate and government sponsors, the investment community, and broker-dealers across the globe as helping guide the catastrophe bond market to where it is today.

“As the global risk landscape evolves, we are confident that the catastrophe bond sector’s longstanding reputation of innovation, which began 25 years ago, will continue for years to come,” he said in the release.

Source: Aon plc