Catastrophe bond issuance in Q2 2016 stood at $800 million across five transactions, a relatively low figure for an active quarter for issuance, according to a new report by Aon Securities.
The report, Insurance-Linked Securities Q2 2016 Update, revealed that risk transferred to capital market investors was at a relatively high-risk level, a trend that developed during 2015, with a weighted average risk interest spread of 8.4 percent and a weighted average expected loss of 5.05 percent.
The report also found that US named storms and earthquakes dominated the catastrophe bond market in Q2, with half of all tranches providing a form of aggregate coverage.
Meanwhile, according to the Financial Industry Regulatory Authority’s (FINRA) Trading Reporting and Compliance Engine, there were 218 secondary market trades totalling $245 million during Q2 2016, a decrease in trade volume of more than 32 percent compared to Q1 2016.
Following a record-breaking Q1 issuance of $2.2 billion, catastrophe bond issuance for the first half of calendar year 2016 stood at $3 billion.
Paul Schultz, CEO of Aon Securities, said: “Catastrophe bond issuance volume was down considerably in Q2, with only five new cat bonds issued during the quarter. Capital deployed across all collateralised products though was higher, reflecting the trend we have seen over the past few quarters in which growth in collateralised reinsurance significantly outpaced growth in cat bonds.”
He added: “Given lower primary issuance in cat bonds, it is also not surprising that secondary trading levels in the quarter were lower in a quarter-on-quarter comparison. Looking ahead, and while the primary market is not typically as active during Q3, our firm does expect an active second half of 2016. Many investors have capital to deploy, which should continue to lead to further secondary price increases and a relative improvement in attractiveness of the efficiency in the cat bond market.”
