September 7, 2018

New record shows ILS market has “moved to new level” – Schultz, Aon Securities

A new record for the catastrophe bond and related insurance-linked securities (ILS) market shows that the ILS market has “moved to a new level”, according to Aon Securities CEO Paul Schultz.

Schultz said that the ILS market continues to mature and that he and his team, which remain the most prolific in terms of catastrophe bond structuring services at this time, believe that 2018 is set for another strong year of cat bond issuance.

Aon Securities, the capital markets arm of the insurance and reinsurance broker, has published its latest annual ILS market report, in which it looks at issuance for the twelve months to the end of June 2018.

In that period Aon Securities counted $9.7 billion of cat bond and related life ILS issuance, resulting in a new record by its reckoning for the outstanding cat bond market of $30 billion, the first time Aon’s numbers have tipped over that level.

If we look at Artemis’ cat bond deal data for the same twelve month period, we have recorded $11.86 billion of transactions, but it’s important to note that this includes mortgage ILS and a number of other more specialty lines type ILS transactions that are structured like a cat bond, as well as private catastrophe ILS deals.

But if we look more deeply at our catastrophe bond issuance data, we can see that there is a twelve month period from April 2017 to the end of March 2018 where we recorded a stunning $14 billion of new cat bond and related ILS issuance.

Also, if we strip out all those mortgage and specialty lines type ILS deals we get an outstanding market at this time of $32.4 billion, while our total risk capital outstanding for the catastrophe bonds and related ILS featured in the Artemis Deal Directory is now $36.6 billion.

Differences in how the numbers are calculated aside, Aon’s figures reflect the same strong market growth that we have recorded, resulting in a new record by the brokers reckoning.

Schultz commented, “Following record catastrophe bond issuance in 2017, and the losses from hurricanes Harvey, Irma, and Maria that year, the insurance-linked securities market has maintained its robust performance and has actually moved to a new level in terms of the number of bonds active in the market.”

Aon Securities noted one of the stand-out transactions of the period, the $1.4 billion Pacific Alliance catastrophe bond, sponsored by the World Bank and affording earthquake protection to the nations of Chile, Colombia, Peru, and Mexico.

The largest earthquake catastrophe bond in history, this deal was particularly notable not just for its size, but also for uniting four nations in one disaster relief program, as well as for the reinvestment of the bond’s proceeds into sustainable development projects in the region.

“We are pleased to see that the ILS sector continues to mature, and that sponsors and investors have responded to the test of loss events, by not only maintaining, but often increasing their support of this asset class. We believe that 2018 will see another strong performance,” Schultz closed.

To read more articles like this one, visit Artemis.

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