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Catastrophe bond market reaches $30bn milestone

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    • Alternative Capital
    • Financial Results
    • Mergers & Acquisitions

Alternative capital available in re/insurance market increases to $98bn...

Aon Securities, the investment banking division of leading global professional services firm Aon plc (NYSE: AON), has launched its annual report on the insurance-linked securities (ILS) sector, which analyzes the key trends witnessed in the 12 months to June 30, 2018, and also provides an overview of related markets and re/insurance mergers and acquisitions activity.


The report, Alternative Capital Fortifies Its Position, reveals that USD9.7bn of catastrophe bonds were issued across 29 transactions during the period under review – the second highest issuance figure for the period on record, which comprised a record first quarter 2018 issuance of USD3.6bn.


Furthermore, as at June 30, 2018, the amount of alternative capital in the re/insurance sector stood at a record USD98bn, while catastrophe bond limit on-risk had reached USD30bn – an increase of USD4.2bn from the prior year period, and a new record for the sector.


Transactions during the 12 months included the USD1.4bn Pacific Alliance catastrophe bond, sponsored by the World Bank to provide earthquake protection to the nations of Chile, Colombia, Peru, and Mexico. The transaction was the largest earthquake catastrophe bond in history, and was notable not only for its size, but for uniting four nations in one disaster relief program, and for the reinvestment of the bond’s proceeds into sustainable development projects.


In the period under review, the Aon All Bond Index and US Hurricane Bond Index achieved returns of 2.72 percent and -1.13 percent respectively, with the Aon All Bond Index outperforming all comparable fixed income benchmarks, but underperforming the 12.17 percent return of the S&P 500 index.


Paul Schultz, Chief Executive Officer of Aon Securities, said: “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. 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.”


Meanwhile, during the period under review USD2.9bn in limit was secured through the 17 quota share sidecar transactions that came to market, six of which were launched by new sponsors, and 11 were renewing entities.


In the six months ending June 30, 2018, global re/insurance M&A deal value increased significantly, led by a number of notable transactions, including American International Group acquiring Validus Holdings, Ltd., Kemper Corporation acquiring Infinity Property and Casualty Corporation, and AXA SA acquiring XL Group Ltd.


According to S&P Capital IQ, the global re/insurance sector announced first half 2018 M&A transactions with total deal volume of USD30.1bn across 402 deals, compared to USD12.4bn across 384 deals for the same period in 2017 – a total deal value increase of 143 percent and a deal volume increase of five percent.


To view the full insurance-linked securities 2018 annual report, please follow the link:


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