A slew of new cat bond issues meant overall ILS in play increased to $30bn at June 30, despite a record amount of cat bonds maturing in the second quarter

A robust second quarter of insurance linked securities (ILS) issuance highlights the robustness of alternative reinsurance capital after the high catastrophe losses of 2017, according to Aon Securities.

New issuance in the second quarter reached $4bn (see chart 1, below), the third largest second quarter total in cat bond history.

A slew of new issues meant overall ILS in play increased to $30bn at June 30 ($28.3bn of which was non-life business) – despite a record amount of cat bonds maturing in the second quarter.

Aon’s report stated: “Q2 2018 comprised a record volume of maturating bonds, with nearly $3bn of limit coming off-risk; however, this capital was entirely replaced, and even expanded through $1bn of new issuance volume.”

Traditional capital was flat at $515bn, while alternative capital rose by $6bn (7%) to reach $95bn, representing 16% of the overall reinsurance market total (see chart 2, below).

Aon noted that the second quarter is typically the period with the highest total of issuance in the year – due to US wind protection being sought ahead of the start of the hurricane season.

Pricing for cat bonds was below the levels seen before the 2017 hurricanes, Aon highlighted, with a weighted average multiple at issuance (issuance spread divided by expected loss) of 2.46 times for Q2 2018, compared with a weighted average multiple of 2.58 times for Q2 2017

Second quarter issues were mostly by repeat sponsors, but Aon pinpointed five main points.

The first of these marked the first use of the UK’s new onshore regime for catastrophe bonds.

In May, French reinsurer Scor returned to the capital markets with the first transactions since 2014 from its Atlas programmes.

The $300m single-tranche industry index deal is the first to be domiciled in the UK and benefit from the new London market ILS regulatory regime.

The cat bond provides retrocessional reinsurance protection over a four-year term against US named storms, US and Canadian earthquakes, and European windstorms, where losses will aggregate on an annual basis.

Secondly, Aon noted that an issuer which ceded losses in previous bonds successfully come back to the market, with Caelus Re V on behalf of Nationwide.

The deal provided Nationwide and its subsidiaries with three-year coverage against multiple US perils such as US named storm, earthquake, severe thunderstorm, wildfire and others, on an indemnity basis.

Thirdly, Aon noted a new entrant to the market: Transatlantic Re. Transatlantic brought its first bond to the market with Bowline Re 2018-1 offering retrocession protection for itself and its subsidiaries.

The Bermuda bond was initially issued as a single class of $200m, later upsized to $250m.

Bowline Re provides coverage over a four-year term on an annual aggregate basis, against named storms, earthquakes and severe thunderstorms across the US, Puerto Rico, Canada, the US Virgin Islands and the District of Columbia.

Aon also remarked on the return of Aspen Insurance as a sponsor, with Kendall Re 2018-1, after having remained out of the cat bond market for nearly a decade.

The transaction provided three-year coverage on losses incurred from a range of perils, which include US named storms, US and Canadian earthquakes, US severe thunderstorms, wildfires and winter storms and European windstorms.

Lastly, Aon noted the continued usage of the catastrophe bond market from coastal windpools in Everglades Re (Florida), Alamo Re (Texas), and Pelican IV Re (Louisiana) which each had exposure at risk to the 2017 hurricanes Harvey, Irma, and Maria.

Aon ILS chart 1

Aon ILS chart 2