Cat bond issuance third largest in history in Q2

Catastrophe bond issuance in the second quarter of 2018 totalled over $4.03 billion, representing the third largest second quarter issuance total in history, according to the Q2 2018 Update report on the insurance-linked securities (ILS) sector by Aon Securities.

The 2018 second quarter catastrophe bond issuance was below the $6.38 billion issued in the second quarter of 2017 but much higher than the $800 million issued in the second quarter of 2016.

Given the 2017 US wind loss events, this strong result evidences the continued utility of catastrophe bonds for sponsors and investors alike and demonstrates the continued robustness of the insurance-linked securities sector, Aon noted in the report.

The second quarter of each year is typically the largest for catastrophe bond issuance volume, as relatively large amounts of US wind-exposed capacity is purchased, Aon explained. The second quarter of 2018 comprised a record volume of maturating bonds, with nearly $3 billion of limit coming off-risk. However, this capital was entirely replaced, and even expanded through $1 billion of new issuance volume. The total outstanding catastrophe bond limit was over $30.0 billion as at June 30, 2018 (comprising $28.3 billion of non-life issuances) – a record high for the market.

Issuances during the quarter were almost exclusively due to repeat sponsors, with the exception of Transatlantic Re (TransRe) which entered the market in May with its Bowline 2018-1 offering.

Pricing for catastrophe bonds was below the levels seen before the 2017 catastrophes, with a weighted average multiple at issuance (issuance spread divided by expected loss) of 2.46 times for the second quarter of 2018, compared with a weighted average multiple of 2.58 times for second quarter of 2017. Another notable event occurring in the quarter was the incorporation of the first UK-based vehicle for SCOR’s latest Atlas transaction, which made use of the newly-created London ILS regulatory regime.

Overall, the data shows that global reinsurer capital increased 1 percent to $610 billion at March-end 2018 compared to the end of 2017. Traditional capital was flat at $515 billion, while alternative capital rose by 7 percent over the period, or $6 billion, to $95 billion, now representing 16 percent of the total.

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