The insurance-linked securities (ILS) sector might see a bumper year ahead as a record number of catastrophe bonds mature – and most will likely be renewed – boosting what is also expected to be a bullish year for new issuance, according to a report by Aon Securities, the investment banking division of Aon Benfield.
The report, Insurance-Linked Securities Year-End 2016 Update, reveals that during the fourth quarter, five catastrophe bond transactions came to market totalling $2.4 billion, including the largest transaction of the year, Galilei Re, which provided $1.3 billion of coverage for XL Bermuda.
Total catastrophe bond issuance for calendar year 2016 reached $5.8 billion – a decrease from $6.9 billion in 2015 – due to a competitive landscape in the re/insurance market, despite the strong fourth quarter and record first quarter issuance of $2.2bn, the report showed.
Issuance levels for the full year were never able to recover from the lower levels in the second quarter, which historically witnesses higher issuance levels given its alignment with the start of the North America hurricane season.
Looking ahead to the first half of 2017, a record amount of catastrophe bonds will mature, with $6.4 billion coming off-risk. Also taking into account issuance from repeat, as well as new sponsors, Aon Securities said its preliminary view for 2017 primary catastrophe bond issuance is $8bn.
Paul Schultz, chief executive of Aon Securities, said: “Given the positive market response already witnessed in late 2016, we expect investors to reinvest available capital and continue to support large competitive alternative reinsurance transactions. In the context of the macroeconomic environment, we see investors finding continued value in the alternative ILS asset class given the diversification benefit, and expect continued sector growth regardless of outcomes in either interest rate or equity markets.”
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Aon Securities, ILS, Paul Schultz, Report, Insurance, Reinsurance, North America, UK, Europe