Catastrophe bond market reaches $30bn milestone

The catastrophe bond limit on-risk has reached $30 billion during the 12 months to June 30, 2018 – an increase of $4.2 billion from the prior year period, and a new record for the sector, Aon noted in the report titled 'Alternative Capital Fortifies Its Position'.

The amount of alternative capital in the re/insurance sector stood at a record $98bn, the report noted.

In the 12 months to June 30, 2018, $9.7bn of catastrophe bonds were issued across 29 transactions, the second highest issuance figure for the period on record, according to Aon Securities.

Transactions during the 12 months included the $1.4 billion 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.

“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,” said Paul Schultz, CEO of Aon Securities. “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 $2.9 billion 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.

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