Cat bond issuance was 20 percent higher in the first half of 2020 than in the whole of 2019, according to Aon Securities’ latest Insurance-Linked Securities (ILS) report.
Deals offering some $2.8 billion of property cat bond limit were placed in the 2nd quarter of 2020, pushing the total issuance for the year to $6.5 billion, 20 percent more than the $5.4 billion issued in the whole of 2019.
This was despite some deals being delayed due to COVID-19.
The total issuance for 2020 comprises 27 property/casualty transactions completed by 24 sponsors with an average deal size of 241 million. In 2019 there were 23 transactions completed by 21 sponsors.
The total amount of property cat bonds outstanding is marginally down on 2019 at $28.4 billion.
Aon predicted the busy pipeline will continue for the rest of 2020, given the expected maturities of approximately $2 billion. “This quarter’s steady flow of new issuances, despite a brief interruption due to the volatility from COVID-19, was a great reminder of the resilience of this market,” Aon said.
Although most transactions priced at their mid-to-wide ends of guidance, the report noted that a slight widening of issuance spreads did not stop repeat sponsors from coming back to market. Repeat sponsors accounted for all the Q2 transactions but one, as Fidelis came to market with their first transaction, Herbie Re Ltd 2020-1, which completed in mid-June.
Aon’s report said: “As some issuance spreads widened, we saw some investors increase their ticket sizes and others re-enter the space. We still see a preference for cleanly structured deals from high-quality sponsors and investors still seem to favor per occurrence over aggregate triggers as a result of the most recent loss events.”
The report noted that COVID-19 had delayed some deals in late Q1 and early Q2, and triggered outflows from certain investors. Spreads in the secondary market widened as some investors sold in bulk to reallocate to other opportunities away from ILS, Aon noted.
In early Q2 spreads increased to levels reminiscent to 2013, as they had widened about 10 percent on average. “In the primary, COVID led to increased, but reasonable, investor demands for future transactions. Investors requested that exclusionary wording around pandemics and more specific definitions, especially around the term ‘Other Perils,’ be included on future transactions to minimise potential uncertainties.
Aon said: “So far, it seems that sponsors have not had an issue with this request and some transactions specifically distinguished that COVID-19 could not affect the notes being offered. The ILS market has proven to be resilient, yet again, as the Aon ILS Index remained relatively stable compared to most other market indices after the outbreak of the pandemic.”
Aon Securities, Insurance linked securities, COVID-19