Cat bond issuance reaches record $11bn in 2017, decline in 2018 expected

The catastrophe bond market reached a new record in 2017 with a combined total capacity of $10.7 billion, according to a new Aon Securities report.

The Insurance-Linked Securities Year-End 2017 Update report reveals that during 2017, 35 catastrophe bonds were issued by 31 different sponsors.

The previous annual issuance record of $8.38 billion, established in 2007, had already been surpassed by the end of June, following a first quarter issuance of $2.2 billion and a second quarter issuance of $6.4 billion. This first half total of $8.6 billion was then augmented with a third quarter issuance of $0.8 billion and a fourth quarter issuance of $1.3 billion.

As at December 31, 2017, the capacity of all catastrophe bonds active in the market, also known as catastrophe bonds ‘on-risk’, totaled $25.7 billion – another new record – while alternative capital had reached a record $89 billion.

While a series of catastrophe events in the second half of the year impacted the pricing on certain catastrophe bonds, the market overcame this challenge in the approach to year-end with new capital entering the sector.

“The ILS market had a very strong 2017, with several new records being set and alternative capital rising to new heights in the reinsurance marketplace,” said Paul Schultz, CEO of Aon Securities.

“We expect to see a gradual broadening of the scope of ILS products, making them an even more common risk transfer tool for re/insurers, with continued support from investors for this diversifying asset class,” Schultz added.

For 2018, the ILS market is expected to maintain much of the momentum it generated during 2017, with existing sponsors expected to renew maturing capacity and new sponsors and investors entering the sector.

Aon Securities forecasts catastrophe bond issuance for 2018 will be approximately $8-9 billion.

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