ILS continues to be a ‘boutique business’ within reinsurance for Aon: Andersen

According to Eric Andersen, President of broking giant, Aon, the insurance-linked securities (ILS) market continues to be a very “boutique business within reinsurance” for the firm, in terms of the scale of the traditional reinsurance treaties seen across the industry on property cat, liability and specialty.

Andersen noted that ILS is a growth area though and one the firm remains very excited about for its potential to continue expanding.

Aon said in its fourth quarter and full year 2024 results today that its Reinsurance Solutions segment delivered 6% and 7% organic revenue growth, respectively.

The broker also said that its reinsurance results reflected a double-digit increase in insurance-linked securities.

Speaking earlier today during the broker’s earnings call for its latest results, Edmund Reese, Chief Financial Officer, commented on the firm’s impressive growth within its Reinsurance Solutions segment.

“Reinsurance organic revenue reached 6% in Q4’24, growing over an elevated Q4’23 on the back of continued strength in our Strategy and Technology Group, strong treaty placements with existing clients, and increased insurance linked-securities, specifically interest and catastrophe bonds continued to grow as investors seek unique asset classes with uncorrelated returns. And Aon is the leading industry provider in cat bond placements,” he explained.

At the same time, Greg Case, Chief Executive Officer, also highlighted how the broker’s work during Q4’24 helped demonstrate the power of risk capital.

“Our work in the fourth quarter to help source $715 million of alternative reinsurance capacity for a major underwriter, and the record 30% increase in Aon Client Treaty capacity are just two examples of the power of risk capital,” he commented.

Meanwhile, Andersen was asked how big of business, relative to the overall revenues of reinsurance, is ILS? As well as also addressing whether ILS could be a big driver of continued, better than expected organic growth in the future?

“I would say the ILS business continues to be a very boutique business within reinsurance, in terms of the scale of the traditional reinsurance treaties on property cat and liability, and specialty that you would know,” Andersen explained.

“I think one of the interesting things about the ILS market that we’re so excited about, sort of fits underneath this risk capital framework.

“The ability to bring that type of capability, whether it’s cat bonds for property, or whether it’s cyber, over into the corporate space. And, being able to sit down with a large corporate client who has a huge real estate portfolio, very diversified in their own right, and have access to capital that’s essentially driven by the ILS structure into the capital markets, just gives them another tool as they look to transfer risk across.”

He continued: “So, the insurers are obviously still users and continue to manage the tail risk on what you would call a cat bond. But you are seeing interest in the corporate market, on the primary market, looking at those types of structures, whether in the form of a parametric bond or an ILS cat bond. That’s just one of the examples where the teams of reinsurance and insurance are working closely together.”

Aon remains at the top of our catastrophe bond & related ILS issuance bank & broker leaderboard, based on cat bond risk capital outstanding it has helped to bring to market.

Additionally, Reese also added, that relative to the overall portfolio, ILS is a smaller component, but its a component that is driving notable growth. “And that’s part of the beauty of the reinsurance business, but Aon overall, is the broad based growth that we’re seeing,” he noted.

Adding: “So, we saw a contribution from the ILS securities, we saw a contribution from our Strategy and Technology group. In addition to our ongoing growth with the largest part of our reinsurance business in treaty and then in fac, as well. So, that dynamic is across each one of our solution lines, where it’s broad based, and we’re seeing growth, maybe incrementally in one area relative to the others.”

“But at the end of the day, it comes back to our ability to be able to retain these reinsurance clients, and our ability to bring more capital solutions and other options to the table for them to help be able to drive that growth with our existing clients and bringing new clients to it.

“So, that’s the key thing when we think about the overall growth impact and profile for Aon moving forward,” he concludes.