Cat bond market strong with busy pipeline despite COVID-19, says Aon

The catastrophe bond market showed resilience in the wake of a number of natural perils across Asia Pacific, Europe, the US, and Australia, as well as the COVID-19 global pandemic, with "busy pipeline" activity anticipated for the second half of 2020, Aon has said in its new insurance-linked securities (ILS) report.

The ILS markets achieved record catastrophe bond issuances in the 12 months to June 30 2020.

According to the report, $9 billion of catastrophe bond issuance was secured during the period – an increase of $3.5 billion year on year – while ILS capital decreased from $93 billion to $91 billion. By June 30, 2020, catastrophe bonds on-risk stood at $28.8 billion, 1.5 percent less than June 30, 2019.

Following a sector slowdown in April due to COVID-19, the primary market resumed higher levels of activity in May and June, with busy pipeline activity anticipated for the second half of 2020.

Aon noted that the year also attracted new sponsors along with repeat issuers, as well as an expansion of perils and geographies. “We expect similar innovation to continue in the ILS market as the years progress, with perils like business interruption or cyber in the short to medium term,” the broker said.

Aon pointed to a shift in placement timing around ILS deals, which it said reflects “the increasing value of the catastrophe bond market outside of the typical insurance and reinsurance sponsors.”

Aon also highlighted the resilience of the ILS market during the early months of the COVID-19 pandemic. “The strong performance of the uncorrelated assets made this market a source of fresh capital to take advantage of distressed asset valuations,” Aon said. “The ILS market reacted positively, with capital meeting selling pressure, driving only modest price movements, even at the very worst of the market.”