Catastrophe Bond Issuance Reaches Record Levels: Aon Benfield Report

January 16, 2015

Property catastrophe bond issuance for the fourth quarter 2014 stood at USD$2.1 billion across six separate transactions, contributing to a record annual property catastrophe bond issuance of USD$8.0 billion, according to a report published by Aon Benfield Securities, the investment banking division of Aon Benfield.

The report, entitled “Insurance-Linked Securities Fourth Quarter 2014 Update,” analyses the key ILS trends witnessed in the fourth quarter of 2014.

At December 31, 2014, total catastrophe bonds on-risk stood at USD$24.3 billion, representing another record for the market and an 18 percent increase over the prior year period, the report said.

Notable transactions in the fourth quarter included Everest Re’s Kilimanjaro Re Series 2014-2 Class C notes, which provide the firm with USD$500 million of earthquake coverage for Canada and the United States, and represents the largest ever five-year term catastrophe bond transaction, the Aon report added.

Meanwhile, the California Earthquake Authority (CEA) returned to the catastrophe bond market in the fourth quarter, introducing a new program, Ursa Re Ltd. The latest transaction for the CEA is the largest yet by USD$100 million and provides California earthquake indemnity coverage on an annual aggregate basis.

“The strong finish to 2014 resulted in new records being established in the ILS sector, and while a certain amount of sponsor interest can be attributed to the favorable spreads when compared to traditional reinsurance, the greater range of options that have become available across ILS products was also a significant driving force,” according to Paul Schultz, chief executive officer of Aon Benfield Securities.

“The increased investor appetite for ILS, coupled with the increasing sophistication of solutions, should ensure a positive outlook for the sector in 2015…,” he went on to say.

The report reveals that for the 12-month period to December 31, 2014, all Aon Benfield ILS Indices posted gains. The Aon Benfield All Bond and BB-rated Bond indices posted returns of 4.39 percent and 2.02 percent respectively, while the U.S. Hurricane and U.S. Earthquake Bond Indices returned 7.37 percent and 3.46 percent respectively.

Aon Benfield Securities forecasts another active year for the ILS market in 2015, fueled by continued growth in alternative capital, and cedants’ increasing comfort with the utilization of ILS in their risk transfer programs.

With USD$5.5 billion of catastrophe bonds maturing in the first half of 2015, it is expected that many existing sponsors will choose to renew their ILS programs, and that new sponsors will continue to be attracted to the sector given the favorable interest spreads and expanding scope of coverage, the report said.

A PDF of the entire “Insurance-Linked Securities Fourth Quarter 2014 Update ” can be obtained via the Aon Benfield website.

Source: Aon Benfield Securities

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