“Orderly” cat bond market grew 8% in last year: Aon

In the last year of record to June 30th 2022, an “orderly” catastrophe bond market continued to provide valuable capacity to both new and repeat sponsors, growing the market 8% over that year despite wider global macro headwinds, Aon Securities has said.

The investment banking and insurance-linked securities (ILS) specialist division of the insurance and reinsurance broker explained that the catastrophe bond market has been a bright spot of continuing momentum and expects this to continue.

In the latest Aon Securities annual ILS report, published yesterday, the thoughts of its CEO Paul Schultz were echoed, who told us in an interview that he expects a busy second-half of 2022 and forecasts that momentum to carry into 2023.

Insurance-linked securities (ILS) capital was relatively stable in the year to June 30th 2022, down just 2% to $95 billion, but the catastrophe bond market managed to expand in the same period.

The cat bond market actually expanded by an impressive 8% over the same period, to reach $36 billion of outstanding catastrophe bonds.

Aon Securities explained that the year saw both new and repeat issuers using the catastrophe bond market for capacity and reinsurance protection, while new geographical coverages and structural innovations were also seen in the period.

While issuance in H1 2022, at $8 billion by Aon Securities reckoning, came close to the prior year, the broker dealer expect momentum to continue through this half and into 2023.

Paul Schultz, chief executive officer of Aon Securities, explained that the ILS market was particularly healthy when you consider the challenging backdrop.

“The ILS market has continued to be supported by new and repeat sponsors, and has provided access to capital in a positive orderly manner,” he explained.

“Even when faced with wider headwinds such as the conflict in Ukraine, inflationary pressures and rising interest rates, there was near record issuance during the first half of 2022,” Schultz said.

Echoing our recent interview, Schultz forecast, “We expect this momentum to continue through to the end of the year as ILS further establishes itself as a valued asset class and risk transfer mechanism used by organizations seeking to make better decisions as they deploy capital.”

There are roughly $2 billion of cat bonds still to mature in 2022, by Aon Securities’ numbers, which is a figure new issuance should easily eclipse as long as there are no impediments to market traction.

As a result, Aon Securities said that it, “forecasts that ILS market issuance figures could rival the record calendar year issuance in 2021.”