ILS market resilient despite COVID-19, 'busy pipeline' to continue in 2021

The insurance-linked securities (ILS) maket showed resilience during the pandemic with a "busy pipeline" of cat bond issuance, and this positive momentum is likely to carry on in 2021, Aon has said in its new ILS report.

There was a total of $11 billion of property cat bond limit placed in 2020, according to Aon, the highest number on record for annual issuance.

It represented an increase of 104 percent compared to the $5.4 billion placed in 2019.

Issuance also exceeded annual maturities of $9 billion in 2020. The total amount of property cat bonds outstanding was slightly up to $29.5 billion, a less than 2 percent increase on 2019’s total.

Fourth quarter issuance came in at $3.7 billion, according to Aon, making it a record quarter for issuance, with Q4 2019 seeing issuance of $2.2 billion. Q4 2020 saw a total of 14 transactions, with 15 of the 22 classes upsized from their guidance, demonstrating widespread investor support.

Four new issuers entered the P&C primary market in Q4, including Los Angeles Power and Water Department.

There were 46 property and casualty transactions in 2020, completed by 36 sponsors with an average deal size of $239 million, compared with 23 transactions completed by 21 sponsors and an average deal size of $234 million in 2019.

Aon predicts that the "busy pipeline will continue in Q1 and Q2 2021", citing the expected maturities of approximately $2 billion and $4.3 billion, respectively.

In the secondary market, the volume of trading consistently increased over the course of Q4, with approximately 63 trades in October, 84 trades in November and 107 in December.

“As the primary issuance pipeline picked up after a very quiet Q3, so did trading,” said Paul Schultz, chief executive officer of Aon Securities. “Secondary spreads continued to rebound moderately as they reflected the rates achieved in the primary market.”

Aon predicts there will be increased trading volume throughout the new year.

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