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The Actuary The magazine of the Institute & Faculty of Actuaries

Catastrophe bond issues hit record high in first half of 2014

Insurers issued a record $4.5bn of catastrophe bonds in the second quarter of 2014, according to a report by Aon Benfield Securities.


Its Insurance-linked securities second quarter 2014 update revealed that 12 catastrophe bond transactions closed during 2Q14, representing $4.5bn of issuance, ‘the most of any quarter in the entire history of the ILS market’.

Catastrophe bonds, a form of financial security and usually insurance-linked, are issued by insurers to raise money and spread risk in order to protect their balance sheets in case of large-scale payouts, such as those caused by natural disasters.

In the event of the catastrophe occurring, the bondholders lose their money and it is used to pay the insured.

The first quarter of the year saw $1.4bn of catastrophe bond issuance. Combining this with second quarter figures, the ILS market saw a ‘record first half 2014 issuance of $5.9bn – exceeding the prior year period by almost 50%’. 

Paul Schultz, chief executive officer of Aon Benfield Securities, said: ‘After a strong 2013, the ILS market has managed to increase its momentum through the first and second quarter of this year, with new records being set for issuance volumes and more catastrophe bonds on-risk than at any other time in the market’s history.

‘We believe that there are still further opportunities for expansion, especially if the sector continues to innovate in terms of its product offerings.’

Aon Benfield Securities expects 2014 to be a record year for the ILS market, if strong growth continues in this sector.