Catastrophe bond issuance set first quarter record of $2.2bn, according to Aon ILS study
The report, Insurance-Linked Securities Q1 2016 Update, reveals that total catastrophe bond issuance for the period reached USD2.22bn across 10 transactions, representing a new Q1 record for the ILS sector and an increase of more than 30% on the previous record set in Q1 2015.
Further ILS records were established when outstanding catastrophe bonds stood at USD25.0bn as the quarter came to a close on March 31, 2016.
Bonds covering U.S. named storm and earthquake dominated the market in Q1, as did, to a lesser extent, Japan typhoon. Additional placed perils included U.S. severe thunderstorm, winter storm, wildfire, volcanic eruption and meteorite impact; the latter four, typically viewed as add-ons to multi-peril coverage, are gaining prevalence in ILS transactions. Canada earthquake and U.S. medical benefits ratio coverage were also part of the Q1 2016 issuance.
The report reveals that secondary markets activity increased during the quarter, with trade volume rising more than 25% compared to Q4 2015. In total, 311 trades totaling USD307.75 million were reported in Q1 according to FINRA's Trade Reporting and Compliance Engine (TRACE).
Paul Schultz, Chief Executive Officer of Aon Securities, said: "With market volume typically concentrated around the important reinsurance renewals periods of Q2 and Q4, the strong start to 2016 bodes well for the year ahead, especially in light of the prevailing competitive (re)insurance landscape, which contributed to the more moderate issuance volumes of Q4 2015."
During the first quarter of 2016, all Aon ILS Indices posted gains; the All Bond and BB-rated Bond indices achieved the greatest growth with returns of 1.81 percent and 1.43 percent, respectively, while the U.S. Hurricane and U.S. Earthquake Bond indices followed with returns of 0.72 percent and 1.09 percent, respectively.
The Aon ILS Indices performed with mixed results relative to benchmarks, but managed to outperform the S&P 500 and the ABS 3-5 Year Fixed Rate index. The annual returns for the year ended March 31, 2016 of all Aon ILS Indices also outperformed the prior year's annual returns, for the first time since Q4 2013.
The 10-year average annual return of the Aon All Bond index, 8.65 percent, further produced superior returns relative to the other benchmarks. This demonstrates the value a diversified book of pure insurance risks can bring to long term investors' portfolios.
To view the full Insurance-Linked Securities Q1 2016 Update report, please follow the link below:
About Aon Securities
Aon Securities Inc. and Aon Securities Limited (collectively, "Aon Securities") provide clients with investment banking products, including underwriting, placement and secondary market trading of debt, equity and insurance-linked securities, financial advisory and M&A services and management of long-dated complex financial guarantee risks embedded in life insurance and annuity products utilizing PathWise™. Aon Securities' integration with Aon Benfield's reinsurance operation expands its capability to provide analytics, modeling, rating agency, and other consultative services. Aon Securities Inc. and Aon Securities Limited are all wholly-owned subsidiaries of Aon plc. Securities advice, products and services are offered solely though Aon Securities Inc. and/or Aon Securities Limited.
In the U.S., investment banking and securities products and services are offered through Aon Securities Inc., a registered broker dealer and a member of FINRA and SIPC. Aon Securities Limited is authorized and regulated in the U.K. by the Financial Conduct Authority.