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Seven catastrophe bond transactions came to market in the first quarter of 2017, totaling $2.17 billion and coming in just under the all-time record $2.21 billion that came to market in the first quarter last year, Aon Securities said Friday.
Aon Securities said in its “First Quarter 2017 Catastrophe Bond Transaction Review” that $2 billion of catastrophe bond limit matured during the first quarter, but there was an expansion in the overall market, as new issuance slightly outpaced maturities.
With a further $4.2 billion set to mature in the second quarter, Aon said, investor capacity remains poised to replace maturing capital with strong demand for new issuances.
The majority of issuance in first quarter of 2017 came from returning sponsors to the catastrophe bond market.
Aon said this contrasts with the weak second quarter of 2016 where the record first quarter issuance was followed by the lowest level of second quarter issuance since 2011.
Aon Securities said its preliminary view on primary catastrophe bond issuance for 2017 is $8 billion and the second quarter is expected to match the brisk issuance pace of the first quarter.
Aon said that interest spreads were pressured, a trend that was particularly pronounced for sponsors that issue similar deals year-over year—and sponsors were able to capitalize on strong market demand to upsize transaction sizes.
“Looking ahead,” Aon said, “and with strong demand for new issuances investor capacity remains poised to replace the $4.2 billion of limit that is set to mature in the second quarter 2017.”
The secondary markets continued to decrease in activity in the beginning of the first quarter, Aon said, as investors were more focused on bond maturity and primary issuance activity.
During the first quarter of 2017, the review said, all Aon ILS Indices posted gains, although only the U.S. Earthquake index posted a gain from the same time period the prior year.
The BB-rated Bond and U.S. Earthquake Bond indices achieved the greatest growth with returns of 1.03% and 1.20%, respectively. The Aon All Bond index and U.S. Hurricane indices followed with returns of 0.98% and 0.65%, respectively.
A report by Germany-based Munich Reinsurance Co. has found that insurance-linked securities and catastrophe bond issuances grew to $6.7 billion in 2016, driven partly by increased investor appetite for diversification, Artemis.bm reports. "Diversification in the market was mainly spurred by an increase in Japan wind/earthquake exposure, particularly via two transactions – Aozora Re 2016 and Nakama Re 2016 – and an overall lower share of U.S. wind issuance," said Munich Re.