The catastrophe bond market has hit a new record.

Issuance in Q1 totaled $1.7 billion, the most for the first quarter of any year, according to data cobbled together by Aon Benfield.

Cat bonds are a way for insurance companies as well as other entities to offload certain kinds of risk to capital market investors. Property cat bonds — the lion's share — generally cover the issuer against extreme weather such as hurricanes and earthquakes.

In the first three months of the year there were seven cat bonds insuring against property risk and one health-related transaction from Aetna.

Despite the spike in year-on-year issuance, the total outstanding dipped a bit as maturities topped primary volumes. Some $3.9 billion in cat bonds matured during Q1.  

A new issuer, Safepoint Insurance Company, debuted in March with a cat bond that covered damage from Florida-only hurricanes.

All the cat bonds issued in the quarter were either sub-investment grade, ranging from BB to BBB+, or unrated.  

Paul Schultz, CEO of Aon Benfield Securities, said investor demand for cat bonds remains strong despite shrinking yields.

“The ongoing success of the sector is partly being driven by the structuring of innovative transactions, for which we continue to see new perils, territories, and structural features being added to address individual risk requirements,” Schultz said.

 While Q1 was robust it’s typically the second quarter that sees the heaviest issuance.

How active issuers are over the next three months will go a long way in determining whether the Q1 record will carry over into the full year. 

 

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