Chicago
09 September 2016
Reporter: Becky Butcher

Aon sees decrease in cat bond transactions


A total of 24 catastrophe bond transactions closed during a 12-month period, ending 30 June this year, with a limit of $5.2 billion, a decrease of $7 billion on the previous period, according to Aon Securities.

Aon’s report, Alternative Markets Find Growth Through Innovation, revealed that the decrease was largely due to "significantly lower" issuance volumes during H1 2016, as issuance volumes during H2 2015 were "relatively flat" on a year-over-year basis.

It also found that US exposures continued to dominate the catastrophe bond market, with 18 of the 24 transactions comprising US risk in some capacity.

On a notional basis, this represented 83 percent of the period’s issuance, compared to 86 percent in the prior year period, according to the report.

The report identified that three catastrophe bonds closed covering property risks in Europe, and three insurers required coverage for Japan risks with catastrophe bonds, securing a $720 million total limit. In addition, one extreme mortality bond was brought to market, covering Australia, Canada and UK risks.

In addition, five quota share sidecars were launched during the 12 months, with a capacity totalling $1.1 billion for the four sidecars that disclosed their sizes.

Paul Schultz, CEO of Aon Securities, said: “During the 12-month period under review we saw a continued increase in alternative capital in the reinsurance sector.”

He added: “However, continuing a recent trend, the capital is being increasingly deployed in the collateralised reinsurance space rather than in the form of catastrophe bonds, whose overall lower issuance volumes were driven by a number of factors.”

“[These] including competition from traditional markets and longer coverage periods, both of which result in some cedents renewing capacity less frequently, and certain cedents increasing their risk retentions.”

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