The surge in catastrophe bond market issuance and resulting insurance-linked securities (ILS) market growth over the past 12 months, got here at the precise time for the insurance and reinsurance market, meeting their needs for risk transfer, in keeping with Richard Pennay of Aon Securities.
Pennay, the CEO of Insurance-Linked Securities at broker Aon’s capital markets and ILS specialist unit, noted that the expansion of the cat bond and ILS market has served to strengthen the resiliency of the worldwide insurance and reinsurance market.
Highlighting record catastrophe bond issuance and the record returns investors have enjoyed through a period of relatively low catastrophe losses affecting the asset class, Pennay highlighted the record 18% expansion of the market’s capital base through the last 12 months of record in Aon Securities latest annual ILS market report.
“The scale of the market grew to $45.6 billion, nearly 18% greater than where it stood as of the last publication of this report,” he explained.
Adding that, “The market has benefited from capital inflows since early 2023,” while at the identical time “Investors have benefited from wider risk margins while the diversification merits of insurance-linked securities proceed to be clearly articulated to finish allocators.”
Happening to say that, “The sector’s outperformance has also been well timed for insurers, reinsurers, corporates and governments: demand for extra ILS capability has been unprecedented, as protection buyers contend with higher pricing in each the insurance and reinsurance markets.
“These dynamics combined to create an environment ripe for brand spanking new issuance from Q4 2023 through Q2 2024.”
Pennay went on to clarify the dynamic cat bond issuance environment, with more diverse offerings and latest perils, in addition to the introduction of cyber risk to the market, which he sees as a selected positive.
“The introduction of cyber risk to cat bond investors for the primary time ever was a groundbreaking step forward for risk buyers and seekers, alike. This latest frontier lays the muse for further growth within the ILS market, driven by a peril anticipated to be of accelerating concern to businesses globally for years to return,” Pennay said.
He noted that the widening of the scope of perils and geographies within the cat bond market has also served to extend the attractiveness of the market, to investors, while the “primary draw stays an absence of correlation to broader financial markets.”
Pennay stated, “The past 12 months will be characterised as a 12 months of records, and the expansion of the ILS market comes at a time when risk transfer needs are at their biggest. Inflation, evolving weather trends, and impressive moves to shut the protection gap have all driven demands for greater insurance and reinsurance capability.”
He also noted that the expansion of the market is meaningful to the industry as a complete, saying, “Those in need of protection have benefited from the expanding capital base of the ILS market, a market which has outpaced growth across all other corners of the insurance industry.”
Now greater than ever, the investor base is recognising the advantages of the cat bond and ILS asset class, Pennay believes.
Saying that allocators have realised, “the substantial advantages of uncorrelated, consistent returns, strengthening the broader construction of their portfolios.”
“The expansion in capital, driven by more diversified portfolios of risk on offer, serves to strengthen the resiliency of the insurance industry, an final result we as industry stakeholders can all be happy with,” Pennay said.
Closing by saying, “Aon is supporting its clients in accessing record volumes of ILS capital, helping shape higher risk transfer decisions while navigating volatility, constructing resilience, and pursuing profitable growth opportunities.”