Cat bond issuance rockets: Aon Benfield


Catastrophe bond issuance has seen another bumper year as annual issuance hits $9.4 billion in the 12 months up to June 30, 2014, an increase of 41 percent over the prior year period.

This is good news for Bermuda which is increasingly becoming the domicile of choice for these transactions.

This is according to Aon Benfield Securities annual report on insurance-linked securities (ILS) sector, which added that the high volume of cat bonds, along with 11 sidecar transactions totalling $1.4 billion, and collateralised reinsurance vehicles, allowed alternative capital to capture a 20 percent market share of property catastrophe reinsurance volume.

Over the 12 months a number of new records were set, including the highest ever second quarter cat bond issuance of $4.5 billion across 12 transactions. First half issuance climbed to $5.9 billion of transactions brought to market, exceeding the prior year period by almost 50 percent.

As at June 30, 2014, total catastrophe bonds outstanding remained at a record high, with $22.4 billion of bonds on-risk – an increase of $4.6 billion from the previous year.

“A total of 24 catastrophe bonds covering US perils, and five with Europe exposures were issued. Four catastrophe bonds covering Japan perils were brought to market, compared to none in the prior year, proving the strong and increased interest in the use of the capital markets from Japanese sponsors. Seventy percent of property catastrophe bonds utilized indemnity triggers covering regions such as Australia, Europe, Japan and North America,” said the report.

Aon Benfield estimated that $5-6 billion of new capital had flowed into the sector over the 12 months, bringing total capital inflows to more than $10 billion over the past two years.

It added that market pricing conditions for ILS products continued to decline to attain historical lows with sponsors benefitting from reductions of 20 percent or higher as investor demand kept pace with increased supply, allowing sponsors to expand coverage at competitive rates.

Paul Schultz, chief executive officer of Aon Benfield Securities, said: “The 12-month period under review was one of the strongest ever for the ILS and wider alternative capital markets. Sponsors received improved terms including increases in catastrophe bond maturity periods and a continued decrease in interest spreads to historical lows. Improvements in both pricing and terms and conditions also brought a record number of new sponsors to the market. The average duration of catastrophe bonds has increased steadily over the past three semi-annual issuance periods, but the main driver in the market expansion is the large amount of new issuance driven by highly favourable pricing conditions.”

Cat Bonds, Aon Benfield, Bermuda, North America, Europe, Paul Schultz

Bermuda Re