Cat bonds already 20% up on prior year, busy pipeline to continue: Aon

Issuance of property catastrophe bonds was already running 20% ahead of the total for the prior year by the end of June 2020, putting the market well on its way to beating records again in 2020, Aon Securities explained in its latest report.

As sponsors seek out efficient reinsurance and retrocession coverage, the catastrophe bond market has come back to the fore in 2020, despite the implications of a global pandemic.

Aon Securities, the insurance-linked securities (ILS) and investment banking unit of global insurance and reinsurance broker Aon, explains that the $2.8 billion of new property catastrophe bonds recorded in the second-quarter of 2020 took half-year issuance to an impressive $6.5 billion by the end of June.

In comparison, 2019 only saw $5.4 billion of total property cat bond issuance across the entire year, so 2020 is already 20% up with half the year still to go.

These figures compare to the $3.76 billion of catastrophe bond and related ILS issuance recorded in our Artemis Deal Directory, which took the first-half to $8.81 billion across all related deals.

Full details on second-quarter 2020 cat bond and related ILS issuance is available in our recent market report.

Aon Securities counted 27 cat bond transactions across 24 distinct sponsors for the first-half of 2020, giving an average deal size of $241 million, which is up on the 23 transactions from 21 sponsors seen in 2019.

The outstanding catastrophe bond market, property cat only, fell slightly to $28.4 billion by Aon Securities measure at the middle of this year.

Aon Securities forecasts a busy pipeline of new property cat bond deals as the year continues, saying, “We believe that the busy pipeline will continue over the next two quarters given the expected maturities of approximately USD2 billion.”

The company also praises the robustness of the cat bond market in getting through the Covid-19 period without too significant a stall.

“This quarter’s steady flow of new issuances, despite a brief interruption due to the volatility from COVID-19, was a great reminder of the resilience of this market,” Aon Securities report states.

Explaining that it counted 13 transactions in the second-quarter of 2020, which “received healthy support from investors as 14 of the 18 classes upsized from their guidance.”

Most new property cat bonds priced at the mid-to-wide ends of guidance, but this “slight widening of issuance spreads did not stop repeat sponsors from coming back to market,” Aon Securities further explained.

While this spread widening occurred, “we saw some investors increase their ticket sizes and others reenter the space,” the company continued.

Adding that, “We still see a preference for cleanly structured deals from high-quality sponsors and investors still seem to favor per occurrence over aggregate triggers as a result of the most recent loss events.”

After the recent year’s of cat bond and collateralised reinsurance losses it is no surprise that investors want a cleanly structured, more predictable transaction. As these tend to result in less uncertainty and greater transparency through the deals term, with less surprises rendered when catastrophes occur.

Analyse every catastrophe bond using the Artemis Deal Directory, the Artemis Dashboard and our statistics and charts.

For full details of second-quarter 2020 cat bond and related ILS issuance, including a breakdown of deal flow by factors such as perils, triggers, expected loss, and pricing, as well as analysis of the issuance trends by month and year.

Download your free copy of Artemis’ Q2 2020 Cat Bond & ILS Market Report here.