Catastrophe bond issuance reached a record of US$10.7 billion during 2017 and is set to scale new heights in 2018 despite last year’s catastrophe losses.

In total, 35 catastrophe bonds were issued by 31 different sponsors in the insurance-linked securities (ILS) sector.

The previous annual issuance record of US$8.38 billion, established in 2007, had already been surpassed by the end of June, according to a report released by Aon Securities.

This first half total of US$8.6 billion was then augmented with a third-quarter issuance of US$800 million and a fourth-quarter issuance of US$1.3 billion.

At year-end, the capacity of all catastrophe bonds active in the market totalled US$25.7 billion — another new record — while alternative capital had reached a record US$89 billion.

Despite several catastrophe events in the second half of the year that affected the pricing on certain catastrophe bonds, the market overcame this challenge in the approach to year-end with new capital entering the sector.

“The ILS market had a very strong 2017, with several new records being set and alternative capital rising to new heights in the reinsurance marketplace,” said Paul Schultz, chief executive officer of Aon Securities. “We expect to see a gradual broadening of the scope of ILS products, making them an even more common risk transfer tool for re/insurers, with continued support from investors for this diversifying asset class.”

Aon Securities says the ILS market will maintain much of the momentum it generated last year during 2018, with existing sponsors expected to renew maturing capacity and new sponsors and investors entering the sector.

It forecasts catastrophe bond issuance for 2018 will be approximately US$8 billion to US$9 billion.