Aon Securities Inc.

Proprietary & Confidential 1

Alternative Capital: Update

July 28, 2017

Prepared by Aon Securities Inc.
Aon Securities Inc.

Proprietary & Confidential 2

Record $26.12 billion outstanding catastrophe bond issuance achieved through 2017 year-to-date. Following 20 

year development of the Alternative Capital Market through product innovation and significant industry loss 

events. Approximately $84 billion has been issued since inception.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$ Billions

1997 - 1st parametric cat 

bond, Tokio Marine’s 

Parametric Re covered 

earthquake risk in japan

Alternative Capital Market Timeline

History and Key Developments

Outstanding Catastrophe Bond Limit

As of June 30, 2017

1996 - 1st cat bond, covers 

worldwide all peril risk on 

indemnity basis

1999 - 1st corporate 

sponsor cat bond, 

Oriental Land Co’s

Concentric Ltd.

2000 - 1st industry index 

triggered cat bond, 

Lehman Re’s Seismic 

Limited covered California 

earthquake risk

2005 - Katrina, Rita & 

Wilma $57B insurance 

industry losses1

1 Total Estimated Insured Property Losses Identified by PCS

Source: Aon Securities Inc.

2008 - Financial Crisis

2008 – Four bonds suffer 

collateral loss with 

collapse of Lehman Bros.

2011 – Tōhoku earthquake and 

tsunami; severe weather in the US

2012 to 2014 – Market 

expansion, 16 new 

sponsors

Product Innovation Industry Loss Event Landmark

2016 – Spread 

compression, 45% decline 

in cat bond spread Q2 2012 

to Q2 2016

2003 – 1st

mortality covered 

bond, Vita Capital

2017 –

Record 

issuance 

year, $8.3B

2016 – severe weather in 

the US triggered a payout 

for Gator Re
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Alternative Capital Market has expanded from pure property catastrophe exposure coverage to additional 

markets including mortality, health, longevity, lottery, storm surge, motor third-party liability and pandemic. 

Alternative Capital Market Coverage Development

Expansion Beyond Property Catastrophe Risks

Source: Aon Securities Inc.

Vitality Re 

Limited

$150 Million

US Medical Benefits 

Ratio on Indemnity 

basis

2010

Kortis Capital 

Ltd.

$50 Million

Longevity risk

2010

Hoplon

Insurance Ltd.

€70.3 Million

Lottery winnings

2011

MetroCat Re Ltd.

$200 Million

New York 

Parametric 

coverage for storm 

surge 

2013

Benu Capital 

Limited

€285 Million

Excess mortality 

(France, Japan, 

U.S.)

2015

Horse Capital I 

DAC

€255 Million

Motor third-party 

liability losses

2016

Global Debt 

Issuance Facility

$330 Million

Parametric reported 

cases and deaths

2017

Golden State Re 

Ltd.

$200 Million

Workers’ 

Compensation claims 

(CA Earthquake)

2011

Operational Re 

Ltd.

₣220 Million

Operational Risks

2016

Atlas IX Capital 

Limited

$180 Million

Extreme mortality

2013
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Four of the top 20 largest sponsors based on current outstanding catastrophe bond limit are public sponsors as 

Alternative Capital Market supports privatization of public risks.

0 1,000 2,000 3,000

Allianz

Tokio Millenium

Chubb

AIG

AXA

Citizens Property

SCOR

MA Property

Nationwide...

Heritage

SJNK

Aetna

State Farm

TWIA

Allstate

XL

Zenkyoren

USAA

CEA

Everest

$ millions

2012

2013

2014

2015

2016

2017

Alternative Capital Market Sponsors

Public Sponsor Utilization of Catastrophe Bond Risk Transfer

Source: Aon Securities Inc.

Sponsor Total Outstanding 

($ millions) Triggers

Everest 2,825 Index

CEA 2,075 Indemnity

USAA 1,780 Indemnity

Zenkyoren 1,675 Indemnity

XL 1,575 Index

Allstate 1,325 Indemnity/Index

TWIA 1,100 Indemnity

State Farm 900 Indemnity

Aetna 800 MBR

SJNK 700 Indemnity

Heritage 687.5 Indemnity

Nationwide Mutual 675 Indemnity

MA Property 650 Indemnity

SCOR 630 Indemnity

Citizens Property 600 Indemnity

AXA 534 Index/Life

AIG 525 Indemnity

Chubb 520 Indemnity

Tokio Millenium 430 Index

Allianz 410 Index

Outstanding Catastrophe Bonds

Public Sponsors

As of June 30, 2017

Issuance Year
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 It was estimated that over half of the outstanding catastrophe bonds had exposure to a potential Hurricane Sandy loss1

 Ultimately the economic loss from Superstorm Sandy was USD72 billion, while insured loss was USD30 billion2

 The availability of capital and rate decreases achieved in the catastrophe bond market by Res Re 2012-2 helped to 

stabilize the reinsurance markets overall post Superstorm Sandy

Superstorm Sandy and the Catastrophe Bond Market

1 Catastrophe bonds unbowed by Hurricane Sandy, Reuters 2 Hurricane Sandy Event Recap Report, May 2013, Impact Forecasting

3 Insurance Insider, Eqecat doubles Sandy industry estimate to $10bn-20bn 4 Property/casualty insurance rates expected to firm in wake of Superstorm Sandy, Business Insurance 

5 Reinsurance Market Outlook, January 2013, Aon Benfield 

Source: Aon Securities Inc.

Hurricane 

Sandy makes 

landfall in the 

Caribbean on 

Oct 25

Superstorm 

Sandy makes 

landfall in New 

Jersey on Oct 

29

Residential Re 

2012 Ltd. 

launches in 

early November

2013 

traditional 

placements 

achieve similar 

results

Even as Sandy is forming and 

making landfall, the catastrophe 

bond market continues to be 

active, pricing and issuing Queen 

Street VII Re Ltd. and Atlas 

Reinsurance VII Ltd.

Some predict that 

reinsurance rates will 

rise or that the decline 

in rates will soften as a 

result of the event4

November 1, 2012: Eqecat doubles 

Sandy industry insured loss 

estimate to $10 billion to $20 billion 

given the location of landfall in the 

US3

Aon Benfield estimates 

that substantially all of 

the losses from 

Hurricane Sandy will 

be retained by 

insurers5

October 26, 2012 AIR Insured Loss 

estimate: ~USD1.4 billion (Cuba, 

Jamaica and the Bahamas)

Source: AIR Alert Worldwide

Launched by repeat sponsor 

USAA, Res Re 2012-2 was able to 

take advantage of the available 

capacity and upsize from its initial 

target and two classes closed 

below initial marketed price 

guidance

Taking advantage of the price 

results achieved by Res Re 2012-2, 

two more bonds are issued before 

year end: Lakeside Re III Ltd. and 

Compass Re Ltd. 2012-1
Aon Securities Inc.

Proprietary & Confidential 6

 While there are no bonds in the ILS market which solely cover terrorism, it is inherently included in 

various transactions

– Examples include:

• Extreme mortality deals such as the Vita Capital Ltd bonds

• Event cancelation bonds such as the 2003 FIFA Golden Goal Finance Ltd

 Although terrorism risk can change quickly, the ILS market continues to evolve and is better 

positioned today to contribute to the risk transfer of terrorism risks

– Models which quantify losses of potential terrorism events continue to be refined

– Parametric-style terrorism triggers are currently being developed which will aide in the transferring 

of risk to the capital markets

– Investors continue to become more sophisticated and demand access to perils that are diversifying 

to their current holdings

 Stand alone terrorism coverage is currently available today in the ILS market on a limited basis

 Similar to past large catastrophic events, the ILS market is better positioned to provide meaningful 

capacity after a large terrorist event to help stabilize the market

The Catastrophe Bond Market’s Role in Terrorism Risk Transfer Markets
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Proprietary & Confidential 7

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