Cat bond issuance and alternative capital capacity reach new highs

Catastrophe bond issuance has reached a record high in the 12-month period ending June 30, 2017, while alternative capital reached a new high, according to Aon’s September 2017 Insurance-Linked Securities report.

Catastrophe bond issuance in the 12 months ending June 30, 2017 reached a historic $11.3 billion, $1.9 billion larger than the previous all-time record of $9.4 billion set in 2014. This represents a year-over-year increase of $6.1 billion, as new sponsors entered the market and many repeat issuers renewed maturing bonds at a significant upsize of coverage, the report said.

Overall, the large volume of issuances increased the total outstanding volume of the market by $3.3 billion. The period’s increased issuance levels were driven not only by sponsors returning to the market to renew coverage, but also by investors seeking favourable investments driving up issuance sizes.

Overall, the size of the alternative market increased to $88.8 billion in the 12-month period ending June 30, 2017, an increase of 10 percent from year-end 2016. The ILS market provides investors with an attractive risk-return profile, especially in light of political uncertainty and negative interest rates in some parts of the world, according to the report. Demand continues to outmatch supply, driving down interest spreads and driving up issuance sizes.This also allows for additional perils and more favourable bond structures, like aggregates, to be covered.

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