Property catastrophe bond issuance in the insurance-linked securities (ILS) sector for Q4 stood at $2.1 billion across six separate transactions, contributing to a record annual property catastrophe bond issuance of $8 billion, according to a report by Aon Benfield Securities.
Total catastrophe bonds on-risk stood at $24.3 billion on 31 December 2014, representing another record for the market and an 18 percent increase over the prior year period.
Notable transactions in the report included Everest Re’s Kilimanjaro Re Series 2014-2 Class C notes, which provide the firm with $500 million of earthquake coverage for Canada and the US, and represents the largest ever five-year term catastrophe bond transaction.
Aon also noted the California Earthquake Authority’s (CEA) return to the catastrophe bond market in Q4, after introducing its new programme, Ursa Re.
The latest transaction for the CEA is the largest yet by $100 million and provides California earthquake indemnity coverage on an annual aggregate basis.
Paul Schultz, CEO of Aon Benfield Securities, said: “The strong finish to 2014 resulted in new records being established in the ILS sector, and while a certain amount of sponsor interest can be attributed to the favourable spreads when compared to traditional reinsurance, the greater range of options that have become available across ILS products was also a significant driving force.”
“The increased investor appetite for ILS, coupled with the increasing sophistication of solutions, should ensure a positive outlook for the sector in 2015, and we look forward to working with our clients on new and tailored solutions that meet their risk requirements.”
The report has also revealed that, for the 12-month period to 31 December 2014, all Aon Benfield ILS Indices posted gains.
The Aon Benfield All Bond and BB-rated Bond indices posted returns of 4.39 percent and 2.02 percent respectively, while the US Hurricane and US Earthquake Bond Indices returned 7.37 percent and 3.46 percent respectively.
Aon Benfield Securities has forecast another active year for the ILS market in 2015, which it claims will be fuelled by continued growth in alternative capital, and cedants’ increasing comfort with the utilisation of ILS in their risk transfer programmes.
With $5.5 billion of catastrophe bonds maturing in H1 2015, it is expected that many existing sponsors will choose to renew their ILS programmes, and that new sponsors will continue to be attracted to the sector given what Aon has termed the "favourable interest spreads and expanding scope of coverage".
