The report, Alternative Capital: Strength Through Disruption, reveals that USD5.4bn of catastrophe bonds, including life and health, were issued during the period under review.
As at June 30, 2019, the amount of alternative capital in the re/insurance sector stood at USD93bn – a decrease of USD5bn from the preceding period, mainly driven by a reduction in the collateralized reinsurance segment.
Meanwhile, catastrophe bond limit on-risk had reached a record USD30.3bn (2018: USD30.0bn).
The report reveals that, prior to 2017, only seven catastrophe bond classes of notes had been impaired, with losses totalling USD900m. Following the hurricanes, earthquakes, wildfires, typhoons and winter storm events of 2017, 2018 and 2019, the market endured anticipated impairments of 25 notes, leading to anticipated bond losses totalling USD1.25bn.
This concentrated level of loss was digested by the market during the year under review, with a dramatic impact on the dynamics of capacity, collateral treatment, pricing, and investor sentiment.
Paul Schultz, Chief Executive Officer of Aon Securities, said: “In the wake of the recent losses, the suite of ILS transactions and the mechanisms by which they respond have been under the spotlight to a degree not seen before in the sector. The 12-month period reviewed in this report has been educational for market participants, as well as reassuring, due to impaired bonds responding as designed. After this period of contraction, we expect alternative capital to resume its upward growth momentum later this year and into 2020.”
The report highlights that, in the 12 months to June 30, 2019, USD2.71bn in limit was secured through the 21 sidecar transactions that came to market, seven of which were launched by new sponsors, and 14 were renewing entities.
Meanwhile, the estimate for in-force ILW limit stood at approximately USD6bn, with capital markets investors continuing to be a major driver in the ILW space, both as purchasers of ILW limit and as suppliers of ILW capacity.
In the period under review, the Aon All Bond Index and US Hurricane Bond Index achieved returns of 4.30% and 2.74% respectively, compared to 3.12% and -1.13% respectively in 2018.
View the full insurance-linked securities 2019 annual report
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