Cat bonds see third highest Q1 issuance totals but down year on year: Aon Securities

Cat bonds enjoyed the third highest levels of first quarter issuance in Q1 2021, according to Aon Securities, although issuance was down on the levels seen in Q1 2020.

There was a total of $2.57 billion of property cat bond limit placed in the first quarter of 2021, Aon Securities said, compared with the $3.75 billion placed in Q1 2020.

Issuance exceeded quarterly maturities of $2.06 billion, by $510 million. Aon Securities transactions represented around 43 percent of Q1 quarterly issuance by amount, it said.

The total issuance for Q1 2021 is made up of nine property and casualty (P&C) transactions, completed by nine sponsors with an average deal size of $285 million. In the same period of 2020 there were 14 transactions, completed by 13 sponsors, with an average deal size of $268 million.

Meanwhile, the total amount of property cat bonds outstanding increased by $450 million to $31.5 billion at the end of Q1.

“We believe that the elevated pipeline will continue in Q2 and Q3 2021, given the expected maturities of approximately $4.4 billion, and $1.1 billion, respectively,” Aon Securities said.

In the secondary market, capital inflows and $2.06 billion in maturities created a wave of demand for cat bonds in Q1 2021, Aon Securities said, with primary issuance unable to meet increasing demand.

“The market was mostly one sided as investors were looking to put cash to work, and any trades that completed were executed through the offer side,” the note said. “Spreads tightened to levels last seen in early 2019 and are down approximately 15-20 percent on average from last year’s wides that were a result of the initial COVID-19 outbreak.”

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