Cat bond issuance hits record $12.5 billion

Catastrophe bond issuance reached a record of $12.5 billion in 2021, according to Aon. Up from the previous highest total of $11bn in 2020, the new issuance brings the value of active bonds in the market to $32bn. Aon’s investment banking arm Aon Securities participated in $7bn of last year’s issuance.

The catastrophe bond sector is celebrating its 25th anniversary, Aon noted, with the first cat bond, George Town Re, launched in December 1996. Over $117bn of cat bonds have been issued since.

The bonds had become “an integral part of the insurance ecosystem”, said Paul Schultz, CEO of Aon Securities.

“In addition to growth in scale, catastrophe bonds have evolved to cover a vast array of perils, geographies, triggers and sponsors through some of the most innovative risk transfer structures, and have demonstrated their ability to provide protection for property, casualty, life and health risks,” he said.

“As a testament to its commitment to nurturing and growing the market and ensuring the most efficient capital solutions are available to insurance, reinsurance, corporate and government entities, Aon Securities is proud to have brought new sources of capital to match risks while continuing to increase its market-leading issuance representation.”

Insurance companies have helped pave the way for the broader insurance market to integrate catastrophe bonds into their capital management strategies, Aon added, and reinsurers had demonstrated the ability for catastrophe bonds to anchor core retrocessional programs. Sponsorship had expanded to governments, from municipalities to nations seeking to close natural catastrophe protection gaps, it noted. Corporations across a wide range of sectors have also sponsored cat bonds.

Richard Pennay, CEO of insurance-linked securities for Aon Securities, said: “The expansion of sponsors, the development of structures and the innovation of the sector provides tremendous confidence in the ability for the capital markets to continue to meet the evolving risk management needs of tomorrow, while also helping to address the needs of the underserved.

Schultz added: “If it weren’t for the vision of insurance, reinsurance, corporate and government sponsors, the commitment of the investment community, and the creativity and guidance of Aon Securities and broker-dealers across the globe, the catastrophe bond market would not be where it is today.”