Aon report hails 2017 as ‘historic year’ for ILS

2017 was a historic year for the insurance-linked securities (ILS) sector, according to the latest report from Aon Securities.

Aon Securities’ Insurance-Linked Securities Year-End 2017 Update report said that during 2017 a total of 35 catastrophe bonds were issued by 31 different sponsors, representing a combined total capacity of $10.7 billion and a new record in the ILS marketplace.

“The ILS market had a very strong 2017, with several new records being set and alternative capital rising to new heights in the reinsurance marketplace,” said Paul Schultz, chief executive officer of Aon Securities. “We expect to see a gradual broadening of the scope of ILS products, making them an even more common risk transfer tool for re/insurers, with continued support from investors for this diversifying asset class.”

According to the report the previous annual issuance record of $8.38 billion, which was established in 2007, had already been surpassed by the end of June, following first quarter issuance of $2.2 billion and second quarter issuance of $6.4 billion. This first half total of $8.6 billion was then augmented with third quarter issuance of $0.8 billion and finally fourth quarter issuance of $1.3 billion.

As at December 31, 2017, the capacity of all catastrophe bonds active in the market, also known as catastrophe bonds ‘on-risk’, totalled $25.7 billion – another new record – while alternative capital had reached a record $89 billion.

While a series of catastrophe events in the second half of the year, including the HIM hurricanes, impacted the pricing on certain catastrophe bonds, according to the report the market overcame this challenge in the approach to year-end with new capital entering the sector.

For 2018, the ILS market is expected to maintain much of the momentum it generated during 2017, with existing sponsors expected to renew maturing capacity and new sponsors and investors entering the sector. Aon Securities forecasts catastrophe bond issuance for 2018 will be approximately $8-9 billion.