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Catastrophe bond market hits series of historical highs as second quarter closes, according to Aon ILS study

ILS market surpasses all-time annual issuance record at half-year stage

Aon Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today launches its latest report on the insurance-linked securities (ILS) sector, which analyses the ILS activity that took place during the second quarter of 2017.

The report, Insurance-Linked Securities Q2 2017 Update, reveals that catastrophe bond issuance during Q2 stood at USD6.38 billion across 20 transactions – a new record for quarterly issuance that easily surpassed the previous record of USD4.49 billion set in Q2 2014.

When added to the Q1 2017 issuance total of USD2.17 billion, the first half 2017 issuance total of USD8.55 billion represented a historical high – not only for any first half on record but also any annual period on record.

The previous record annual issuance was established in 2007 at USD8.38 billion.

As the second quarter closed on June 30, 2017, more catastrophe bonds were on-risk than ever before, with USD26.12 billion outstanding in the market.

Strong investor demand meant that many bonds issued in Q2 were upsized from initial guidance, with Kilimanjaro II Re upsizing by more than 100 percent to USD1.25 billion, making it the largest issuance of the quarter, and the third largest catastrophe bond in history.

Of note, six different public entities came to market during the Q2 period, with a total of USD2.2 billion of catastrophe bond issuances.

According to FINRA’s Trade Reporting and Compliance Engine (TRACE), there were 231 secondary market trades totaling USD236.4 million during Q2 2017 – an increase in trade volume of six percent compared to Q2 2016, while the dollar volume of reported trades decreased by four percent from Q2 2016.

Paul Schultz, Chief Executive Officer of Aon Securities, said: “During the second quarter we saw a large amount of maturing limit being renewed, which contributed to the record-breaking issuance figures. However, there was still a significant expansion in the overall market, as a result of new sponsors, favorable pricing, and the ability of alternative capital to provide high levels of market capacity.”

During Q2 2017, all Aon ILS Indices posted gains. The All Bond and U.S. Hurricane Bond indices posted returns of 1.06 and 1.14 percent, respectively. The BB-rated Bond and U.S. Earthquake Bond indices posted returns of 0.95 percent and 0.87 percent, respectively.

The Aon ILS Indices performed with mixed results relative to benchmarks, outperforming the 3 to 5 year U.S. Treasury Notes index. The 10-year average annual return for the Aon All Bond Index was 7.50 percent – outperforming the majority of comparable and benchmarks.

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