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ILS continues to succeed with stable capital and expanded cat bond market: Aon

15th September 2022 - Author: Kassandra Jimenez-Sanchez

Despite industry headwinds, the insurance-linked securities (ILS) market continues to succeed, according to Aon’s Alternative Capital: Growing Markets report, which analyses trends in the sector during the 12-month period through June 30, 2022

The report includes commentary and insights on the catastrophe bond market, transaction activity, ILS-related markets – such as Industry Loss Warranties (ILW), sidecars and direct placements – and growth areas.

Analysts highlighted that in the last year, there was $12bn of catastrophe bond issuance, including in the Life, Accident and Health sectors, representing a small decrease of $0.7bn year-over-year.

The report also revealed that ILS capital remained relatively stable at $95bn through June 30, approximately 2% less relative to the $97bn recorded in the same period last year.

The catastrophe bond market, on the other hand, expanded over the past year. As of June 30, 2022, there was $36bn of outstanding catastrophe bonds, which was 8% greater than the $33bn as of June 30, 2021.

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The period under review witnessed both new and repeat issuers using the catastrophe bond market, along with new geographical coverages and structural innovations, analysts noted.

Paul Schultz, chief executive officer of Aon Securities, said: “The ILS market has continued to be supported by new and repeat sponsors, and has provided access to capital in a positive orderly manner.”

At $8bn , H1 2022 catastrophe bond issuance was $0.5bn less than the record six-month primary issuance figure recorded in the same period last year.

According to the report, The momentum of the robust issuance pipeline observed across Q1 and Q2 2022 is expected to continue in the second half of the year and into 2023.

Schultz added: “Even when faced with wider headwinds such as the conflict in Ukraine, inflationary pressures and rising interest rates, there was near record issuance during the first half of 2022.

“We expect this momentum to continue through to the end of the year as ILS further establishes itself as a valued asset class and risk transfer mechanism used by organisations seeking to make better decisions as they deploy capital.”

With approximately $2bn of catastrophe bonds set to mature before the end of 2022, Aon Securities forecasts that ILS market issuance figures could rival 2021 “record” figures, and it expects continued orderly market activity and momentum in 2023.

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