Second quarter 2021 'record-setting' for ILS market: Aon

The second quarter of 2021 was record-setting for the insurance-linked securities (ILS) market on multiple fronts, according to  Aon Securities latest report, which noted that the freshly raised capital pushed the market to a new "record-breaking" pace.

Second quarter trading volume rebounded significantly following a quiet and bid-heavy first quarter. The market was primed to do well with nearly $4.5 billion in expected maturities, however the momentum extended well beyond the capital redeployment and was robust for both investors and sponsors.

With approximately $5.6 billion of notes issued in Q2, the first two quarters saw the largest notional amount issued for a half year totaling $8.5 billion, $181 million more than the previous record set in H1 2017.

The average transaction size for the first half was $282.3 million over 30 different issuances; 19 of those issuances came in the second quarter, five behind Q2 2017 for the most issuances in a quarter.

In comparison, the average deal size for H1 2020 was $241.8 million across 27 transactions.

According to Aon Securities, of the 35 classes of notes issued during the second quarter, 32 were priced at their tight end of guidance or better. Furthermore, 26 of those classes were upsized, allowing for approximately $2.7bn in additional capacity from capital markets.

Indeed, approximately 70 percent of all classes issued in the second quarter both upsized and saw their spreads tighten to the low ends of their initial guidance or better.

Aon Securities also highlighted that among the 19 corporate, re/insurance and governmental sponsors that came to the market in the second quarter, five were first time issuers, including Ariel Re, Gryphon, SJIC, Vantage, Vermont Mutual.

Additionally, there were six new cedants during the first half of 2021, the second-most since the early 2000’s when the ILS market was still in its infancy, according to the report.

“It was a great time for issuers to complement their risk transfer programs by accessing the capital markets as spreads competed with traditional reinsurance levels, tightening approximately 15 to 20 percent year-over-year,” Aon noted.

“The strong market dynamics also allowed for sponsors to cede a wide array of perils using unique mechanics and structures at favourable terms.

“Many of these transactions were well-received and sponsors locked in competitive rates for multi-year terms similar to those last seen in 2018 – more details on a select number of these issuances are highlighted below.”

Aon Securities said it also expects positive momentum to power through the second half of the year, given that there is around $3.7 billion of cat bonds set to mature, investors sitting on unencumbered cash positions and the positive outlook on their capital raising efforts.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.