Aon’s Pennay: Cat bond market expansion set to continue in Q4

The global catastrophe bond market remains strong as the fourth quarter begins following a period of sustained growth over the past 18 months, according to Richard Pennay, CEO of Aon’s ILS division.

Pennay told The Insurer TV that the cat bond market’s expansion into new geographies and additional perils has driven the sector’s continued growth over the last 18 months.

“We're seeing a move into the broader market. We've recently seen transactions in Mexico, Jamaica, Puerto Rico, and also Europe and Japan,” he said.

“I think there's been a number of remarkable milestones for the market in the last 12 months. As the report states, the market has grown something like 18 percent in the last year. And interestingly, right now, the cat bond market has exactly 100 ceding entities into the cat bond market.”

US cat bonds have seen a rise in profitability over the past 18 months, largely due to the quiet hurricane season in 2023 and increasing demand for capacity in property lines. Pennay believes this profitability will continue, helping the market to keep growing at its current rate.

“This is the first time that we've had over 100 companies participating. So, what we expect going into the fourth quarter is that that growth will continue. So, at the moment, the market remains very strong.

“Investors are generating strong returns, and we believe their sentiment will remain, and therefore, there should be sufficient appetite going into year-end to maintain that level of growth as we move forward,” said Pennay.

Cyber cat bonds

Cyber cat bonds have been the breakout star of the ILS market in the last 18 months and Pennay was bullish about Aon involvement in the space, seeing it as primed for growth.

“Aon remains very much a proponent of the cyber developments, having been involved in a number of the transactions, and we remain upbeat and bullish that this market will continue to grow, because there is demand for capacity, and investors have viewed the cyber bonds today quite favourably.”

“We've seen a number of deals take place, and those deals have actually traded relatively well in the secondary market as well. So we remain confident that the market will grow,” said Pennay.

However, he noted that it may take some time for cyber cat bonds to fully gain traction, as ceding companies need to familiarise themselves with the nuances of the bond structure.

“Now, the extent of that growth will really be determined by the ceding companies' propensity to shift into the cat bond structure. And we think that takes time. It's something that the companies just need to really evaluate and understand before they jump in,” explained Pennay.

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