U.S. named storm and earthquake dominated the catastrophe bond market in Q2, as did sponsors' increasing preference for aggregate structures, with half of all tranches providing a form of aggregate coverage. Meanwhile, according to FINRA's Trade Reporting and Compliance Engine (TRACE), there were 218 secondary market trades totaling USD245.23 million during the period – a decrease in trade volume of more than 32 percent compared to Q1 2016, while the dollar volume of reported trades decreased just over 20 percent from Q1 2016.
Following a record-breaking first quarter issuance (USD2.22 billion), catastrophe bond issuance for the first half of calendar year 2016 stood at USD3.02 billion.
Paul Schultz, Chief Executive Officer 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 collateralized products though was higher, reflecting the trend we have seen over the past few quarters in which growth in collateralized reinsurance significantly outpaced growth in cat bonds. 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 the third quarter, 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."
During the quarter, all Aon ILS Indices posted gains. The U.S. Earthquake Bond index posted the greatest growth, with a return of 1.92 percent; while the All Bond and U.S. Hurricane Bond indices posted similar returns with 1.67 and 1.66 percent, respectively. The BB-rated Bond index posted a return of 1.39 percent. The Aon ILS Indices performed with mixed results relative to benchmarks, outperforming the 3 to 5 year U.S. Treasury Notes index, and with comparable returns to the S&P 500 and the CMBS 3 to 5 year Fixed Rate indices. The 10-year average annual return of the Aon All Bond Index, 8.56 percent, further produced superior returns relative to all other benchmarks. This demonstrates the value a diversified book of pure insurance risks can bring to long term investors' portfolios.
To view the full Insurance-Linked Securities Q2 2016 Update report, please follow the link below:
About Aon Securities
Aon Securities Inc. and Aon Securities Limited (collectively, "Aon Securities") provide clients with investment banking products, including underwriting, placement and secondary market trading of debt, equity and insurance-linked securities, financial advisory and M&A services and management of long-dated complex financial guarantee risks embedded in life insurance and annuity products utilizing PathWise™. Aon Securities' integration with Aon Benfield's reinsurance operation expands its capability to provide analytics, modeling, rating agency, and other consultative services. Aon Securities Inc. and Aon Securities Limited are all wholly-owned subsidiaries of Aon plc. Securities advice, products and services are offered solely though Aon Securities Inc. and/or Aon Securities Limited.
In the U.S., investment banking and securities products and services are offered through Aon Securities Inc., a registered broker dealer and a member of FINRA and SIPC. Aon Securities Limited is authorized and regulated in the U.K. by the Financial Conduct Authority.
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SOURCE Aon plc