New ILS Records Set During 12 Months Ended June 30: Aon Securities Report

September 11, 2015

Annual catastrophe bond issuance reached $7.0 billion – a decrease on the record-breaking prior year ($9.4 billion), yet still the third highest annual issuance in the sector’s history, according to Aon Securities, the investment banking division of Aon Benfield.

Twenty-five transactions – including two life/health transactions – closed during the period, while $5.9 billion of bonds mature, said Aon Securities’ annual report on the insurance linked securities (ILS) sector, which analyses trends in the 12-month period to June 30, 2015.

Titled “Alternative Markets Adapt to Competitive Landscape,” the report revealed that during the 12 months under review, several new records were set in the ILS market:

  • A record first quarter issuance of $1.7 billion across eight transactions;
  • A record average transaction size of $279 million for any 12-month period ending June 30;
  • A record number of catastrophe bonds on-risk ($23.5 billion) for a June 30 period end.

U.S. exposures continued to dominate the catastrophe bond market, with 22 of the 25 transactions comprising U.S. risk in some capacity, the report said, noting that outside of U.S., dedicated Japan risk was covered in two transactions, and stand-alone Europe risk in one transaction.

Meanwhile, during the 12 months eight quota share sidecar transactions closed – totaling $955 million for the seven sidecars that disclosed their sizes. In addition, the report said, the ILW (industry loss warranty) market increased from $3.5 billion to an estimated $4.0 billion.

“The decrease in catastrophe bond issuance during the 12 months was in part due to the reaction of the traditional and collateralized reinsurance players to the heightened competition from the catastrophe bond market,” said Paul Schultz, chief executive officer of Aon Securities.

“This reduction was offset by a sizable increase in collateralized reinsurance participation. We forecast $6 billion to $7 billion in ILS issuance during calendar year 2015, and expect current pricing trends to continue into 2016 in the absence of substantial catastrophic events that disrupt the supply of capital,” Schultz continued.

On an annual basis, through June 30, 2015 all Aon ILS Indices posted positive results. The Aon All Bond and BB-rated Bond Indices posted gains of 2.80 percent and 1.29 percent, respectively. The U.S. Hurricane and U.S. Earthquake Bond Indices returned 5.61 percent and 2.60 percent, respectively.

The Aon All Bond Index outperformed relative to comparable fixed income benchmarks, but underperformed the S&P 500 Index during the 12 months under review, the report said.

Source: Aon Securities

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