INSURANCE

Record ILS figures highlight abundance of alternative capital, according to Aon ILS report

Annual catastrophe bond issuance 20 percent higher than previous record set in 2014

Aon Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today launches its annual report on the insurance-linked securities (ILS) sector, which analyzes the key trends witnessed in the 12 months to June 30, 2017, and also provides an overview of related markets and re/insurance mergers and acquisitions activity.

The report, Alternative Capital Breaks New Boundaries, reveals that USD11.3bn of catastrophe bonds were issued across 32 transactions during the period under review, surpassing the previous record issuance of USD9.4bn set in 2014 by 20 percent.

Furthermore, as at June 30, 2017, the amount of alternative capital in the re/insurance sector stood at USD88.8bn, while catastrophe bond limit on-risk had reached USD25.8bn – both new records.

In the period under review, the Aon All Bond Index and BB-rated Bond Index achieved returns of 5.58 percent and 4.05 percent respectively, while the US Hurricane Bond and US Earthquake Bond indices returned 6.42 percent and 3.87 percent respectively.

The Aon All Bond Index outperformed relative to most comparable fixed-income benchmarks.

U.S. exposures continued to dominate the catastrophe bond market, with 28 of the 32 transactions covering U.S. property risk in some capacity. On a notional basis, this represented 78 percent of the period’s issuance, compared to 83 percent in the prior year period.  European sponsors returned to the market, covering property and auto liability and two returning sponsors sought coverage for Japan risks through catastrophe bonds.

Of note, six separate public sector entities came to the market during the second quarter of 2017, issuing USD2.2bn of catastrophe bonds across a range of regions and covered perils.

Paul Schultz, Chief Executive Officer of Aon Securities, said: “The annual period saw a resurgence in alternative capital, particularly in the first and second quarters of 2017. The uplift was partly due to the renewing of capacity across maturing catastrophe bonds, but was also a result of new sponsors coming to market, strong investor demand and the consequent upsizing of many of the ILS transactions. Aside from insurers and reinsurers, we saw notable interest in catastrophe bonds from public entities seeking to transfer risk.”

Meanwhile, nine quota share sidecars were launched during the 12-month period under review, four of which were new vehicles, and five of which were renewing from 2016. Total sidecar capacity for the period stood at USD1.8bn – well above the USD1.1bn seen in the prior year period.

From an M&A perspective, over the six months ending June 30, 2017, global re/insurance M&A deal value increased significantly when compared against the same period 2016, while deal count remained largely similar.

To view the full insurance-linked securities 2017 annual study, please follow the link: http://aon.io/ils-annual-report-2017

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