Vibrant ILS market with significant deal flow expected in early 2025: Aon Securities

Aon Securities, the investment banking and insurance-linked securities (ILS) specialist arm of the insurance and reinsurance broker, is anticipating a strong start to catastrophe bond and ILS market activity in 2025, with a “vibrant” market and plenty of deal flow forecasted.

As we reported earlier, Aon estimates that alternative capital in reinsurance grew by 5% over the nine-months of 2024, from $108 billion at the end of 2023 to reach another new high of $113 billion by September 30th 2024, helped by retained earnings and catastrophe bond market inflows.

In the latest reinsurance market report from broker Aon, the firm’s capital markets arm Aon Securities explains that the insurance-linked securities (ILS) market is poised for a strong start to 2025.

One driver of this is the pipeline for scheduled catastrophe bond maturities, which is of significant volume for the first-half of 2025.

Artemis tracks upcoming cat bond maturities by quarter and month in this chart, which shows almost $10.28 billion in maturing bonds scheduled for H1 2025.

Aon Securities said, “With a significant pipeline of maturing capacity anticipated for the first half of 2025 and investors’ willingness to deploy their increased cash positions, Aon Securities anticipates a vibrant ILS market with significant deal flow in early 2025.”

Given this cash liquidity coming back to the catastrophe bond market from maturities, it will raise the cash positions of cat bond funds and could drive a period of strong execution for sponsors.

Aon Securities noted that, “Further spread tightening is possible,” but also noted that, “however, investors may redeem some of their cumulative earnings from the market.”

The company also explained that, “As a result of the supply and demand dynamics manifest in this market, there is always the possibility of short-term price volatility, similar to the second quarter of 2024.”

Overall, for the start of 2025, Aon Securities said it “anticipates strong demand from cedents matched with an abundance of deal activity in the form of both catastrophe bonds and sidecar vehicles.”

One of the factors driving ILS market growth, especially in catastrophe bonds, is the fact sponsors tend to return after their first successful ventures into the market and with the number of sponsors growing each year, this is driving higher volumes.

“New clients continue to realize the benefits of multi-year, fixed price, fully collateralized protection. Following the establishment of special purpose insurers, many buyers return to market to build out their programs and establish trading partnerships with ILS investors to supplement their traditional purchases.

“In fact, 50 percent of new participants from 2021 to 2023 have already returned to market with subsequent issuances,” Aon Securities explained.

Our sources in the catastrophe bond market are suggesting the pipeline has been rapidly building, with a number of new sponsors also expected to join the market with debut issuances in 2025.

It remains to be seen how pricing evolves over the first-half, but the stage does appear set for another period where sponsors will be able to benefit from capital market investor appetites to help them secure efficient multi-year fully-collateralized reinsurance capacity.