Aon Securities’ Pennay: Hurricanes Milton and Helene further validate ILS market

Just a few weeks into his new role as CEO of Aon Securities, Richard Pennay admits that “it’s certainly been an interesting time” having been met by the aftermath of two natural disasters.

“From our perspective, though, it's very much an event that really validates the existence of the ILS market in that this is what we do,” explained Pennay in an interview with The Insurer TV. “We are looking to ensure that there is capital available for Florida and for such large insurance losses that can occur.”

Last week, Moody’s RMS issued a provisional US private market insured loss range of $35bn to $55bn for the combined impacts of hurricanes Helene and Milton. While these figures are not insignificant, the market had initially braced for much larger loss numbers.

“We view both events as being manageable and that the market will be able to digest the events that have occurred,” said Pennay. In fact, the executive anticipates a solid pipeline of business to close out the calendar year.

“If we think about, from a broader ILS standpoint, the cat bond market is there for remote events, and really, we're not looking at significant principal losses or trapped collateral going into the fourth quarter,” said Pennay.

“The market will trade forward as we get into the fourth quarter, and we are expecting a robust pipeline of transactions as we move into the end of the year.”

Cat bond issuance of $17.9bn in the 12-month period ended 30 June 2024 has taken the total size of the market to $45.6bn, according to report by Aon Securities.

Aon’s annual ILS report detailed “a year of record-breaking ILS activity”, with the issuance spread across 76 transactions by 64 issuing entities, including repeat sponsors and new issuers.

“Obviously those that work very closely with our ILS investors and the pension plans and so forth, that are obviously attracted to these increasing returns,” added Pennay. “But we're also seeing other parts of the ecosystem. So, credit funds, for example, have been taking a much stronger look at the sidecar-related products.”

Pennay said Aon is focused on bringing in new capital alongside existing investors.

“We're looking for additional investors to be attracted to the space and to offer additional capital to our clients at the end of the day,” Pennay noted. “We are actively onboarding new clients as we speak, and they're predominantly being attracted to the space because of the recent risk-adjusted returns.”

In all, Pennay believes “this is a really positive time for investors to be evaluating the space and really seeking to take advantage of what have been some really nice risk-adjusted returns in the market”.

Watch the 11-minute interview with Aon Securities’ Richard Pennay for an inside look at how the firm is moving forward in the aftermath of Hurricane Milton, excitement around cyber, managing the growth of its investor base and what clients expect going into the new year.