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12-month catastrophe bond issuance soars to $11.3 billion

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Catastrophe bond issuance soared to $11.3 billion across 32 transactions in the 12 months ended June 30, topping the previous record of $9.4 billion set in 2014 by 20%, according to Aon Securities, the investment banking division of Aon Benfield.

The $11.3 billion also represented a year-over-year increase of $6.1 billion, the report said.

As of June 30, the amount of alternative capital in the insurance and reinsurance sector stood at $88.8 billion and catastrophe bonds on-risk had reached $25.8 billion, an increase of $3.3 billion from June 30, 2016 — both new records, according to the Aon Securities report Alternative Capital Breaks New Boundaries, issued Thursday.

U.S. exposures continued to dominate the catastrophe bond market, with 28 of the 32 transactions covering U.S. property risk in some way, the report said, represented 78% percent of the period’s issuance on a notional basis compared with 83% in the prior-year period.

The report also noted that six separate public sector entities came to the market during the second quarter of 2017, issuing a total of $2.2 billion in catastrophe bonds.

The record was driven largely by the second quarter, during which a quarterly record $6.38 billion of limit was placed, $1.89 billion more than the previous largest quarter, which was the second quarter of 2014.

The quarterly record issuance also coincided with a record amount of maturing bonds, as many 2014 deals came to their three-year maturity, the report said. “However, investor support allowed the market to expand in size as the $6.38 billion in new issues outpaced the maturing $4.47 billion in the quarter.”

“The annual period saw a resurgence in alternative capital, particularly in the first and second quarters of 2017,” Paul Schultz, CEO of Aon Securities, said in a statement, adding the increase “was partly due to the renewing of capacity across maturing catastrophe bonds, but was also a result of new sponsors coming to market, strong investor demand and the consequent upsizing of many of the ILS transactions.”

Aside from insurers and reinsurers, there was “notable interest” in catastrophe bonds from public entities, Mr. Schultz said in the statement.

The report added that nine quota share sidecars were launched during the period, four of which were new and five of which were renewing from 2016, with total sidecar capacity for the period at $1.8 billion, compared with $1.1 billion seen in the prior-year period.