First quarter heralds record $3.58bn catastrophe bond issuance

Utilization of catastrophe bonds reaches highest level in history of sector

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 first quarter of 2018.

The report, Insurance-Linked Securities Q1 2018 Update, reveals that catastrophe bond issuance during Q1 stood at USD3.58 billion across 10 transactions – a new record for first quarter issuance that easily surpassed the 2016 and 2017 issuance volumes of approximately USD2.2 billion.

Repeat sponsors led the first quarter in terms of issuance volume, sponsoring USD2.28 billion of property catastrophe bonds.

Meanwhile, maturing property catastrophe bonds totalled USD1.37 billion during the period – which were not only easily replaced, but also significantly expanded, bringing the market to a new high of USD29.0 billion of catastrophe bonds on-risk as at March 31, 2018, of which USD27.3 billion were property transactions.

The first quarter saw the ILS market expand into new areas – both in terms of geography and perils covered.

In February, a multi-country catastrophe bond was launched on behalf of the World Bank, providing coverage for Latin America through the International Bank for Reconstruction and Development (“IBRD”) CAR program issuances.

Meanwhile, the Sanders Re catastrophe bond on behalf of insurer Allstate comprised coverage that was consistent with a traditional reinsurance placement and included a unique structural feature, with coverage being both on a per-occurrence and annual aggregate basis, in two separate sections of a single class of notes.

Paul Schultz, Chief Executive Officer of Aon Securities, said: “The first quarter catastrophe bond issuance figure has set a positive tone for the remainder of 2018. Following the potential losses that could have been incurred from the series of 2017 natural disaster events, investors in this sector could easily have taken a ‘wait-and-see’ approach. However, given the record levels of issuance seen during the first three months of the year, it is clear they are aware of the inherent value of ILS and are comfortable with the associated risks.”