The catastrophe bond market experienced record issuance over the past year, according to insights from Aon Reinsurance Solutions.
The market saw issuance volume of over $17.9 billion across 76 transactions from July 2023 to June 2024, setting records in three of the past four quarters, including the largest first-half issuance volume ever recorded. This surge in activity was driven by over $12.2 billion in new transactions.
According to Aon, the market required over $6.9 billion in growth to sustain issuance volumes over this period, with nearly $11.0 billion in maturities during the same 12 months. Growth was fueled by coupon earnings on outstanding issuance, estimated at around $6.2 billion, as well as inflows of new capital attracted by favorable spread levels.
Risk margins over the past year were wider on average compared to the prior five-year period, which aligned with the hardening property reinsurance market.
The widening risk premiums in catastrophe bonds reflected broader market conditions in 2023, with sponsors recognizing the relative value of catastrophe bond protection compared to traditional reinsurance. Benefits such as multi-year capacity, collateralized coverage, and price discovery drove demand for new deals.
As a result, outstanding catastrophe bond capital grew by 17.9% to $45.6 billion by June 2024, as clients sought additional risk transfer options in an environment of heightened inflation.
In addition to record issuance, the past year saw a range of sponsors and risks entering the market, including the introduction of the first-ever 144A cyber catastrophe bond. Aon noted that five cyber catastrophe bonds were issued, totaling $575 million.
While cyber risk represents just over 1% of the outstanding market, the development of a structure to transfer systemic cyber risk to insurance-linked securities (ILS) investors marks a significant step forward. This structure provides a foundation for further cyber risk transfer to the market, helping to diversify investor portfolios.
Alongside familiar sponsors like USAA, Allstate, American Family, Heritage, and Nationwide, Aon observed an influx of government sponsors. Additionally, the year saw new market entrants, as well as the return of some sponsors who had been absent for a period.
The sidecar market also continued its resurgence, with new issuance driving total outstanding sidecar volume to an estimated $10.0 billion, up from $7.1 billion in 2023. Aon reported that this new record surpasses the previous peak of $8.4 billion set in 2015.
Sidecar growth has been supported by investors returning after waiting out the soft market cycle, as well as new entrants attracted by higher returns.
Higher potential returns in property sidecars have been driven by elevated premium rates, more remote attachment points, and narrowed coverage definitions. Property sidecars have become a source of proportional reinsurance for insurers seeking to manage earnings volatility due to higher excess of loss retentions.
Aon Securities highlighted its work with Ascot Group Limited in developing a partnership with institutional investors through the new Leadline Capital Partners platform. The initial transaction grants investors access to Ascot’s global property portfolio while providing Ascot with collateralized reinsurance protection. The transaction establishes a foundation for future growth and offers risk-adjusted returns to capital partners.
In the casualty sector, sidecars have developed as improved casualty insurance pricing, higher interest rates, and substantial risk spreads have made these structures attractive.
Investors are seeking long-term investment float opportunities, allowing (re)insurers to negotiate favorable cession terms to supplement traditional coverage.
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