The catastrophe bond market returned to strong growth last financial year despite some impact from the COVID-19 outbreak, Aon Securities says in an annual review of insurance-linked securities (ILS).

Issuance for the year ending June 30 rebounded to $US9 billion ($12.6 billion), including property and life and health, up from $US5.4 billion ($7.6 billion) in the previous year and compared to a high of $US11.3 billion ($15.8 billion) in fiscal 2017.

Following a market slowdown in April due to the coronavirus, the primary market was active again in May and June and is expected to be busy for the remainder of the calendar year, Aon says.

“The fundamentals of this asset class have not changed and the characteristics of the outperformance in this market versus comparable markets were well received by investors,” Aon says.

“There is still considerable uncertainty across the globe to date, but we see the catastrophe bond market in a strong position.”

Hardening in the traditional market will drive ILS issuance on a case-by-case basis while capital inflows will depend on broader financial markets, the report says.

ILS capital markets capacity has decreased to $US91 billion ($127.4 billion) from $US93 billion ($130.2 billion) a year earlier. The total includes collateralised reinsurance, catastrophe bonds, industry loss warranties and sidecars.

Collateralised reinsurance contracted to $US49.3 billion ($69 billion) from $US52.7 billion ($73.8 billion) and the trend is likely to continue, according to the report.

“Although the segment continues to form the largest part of the ILS market by capacity volume, some investors have allocated away from the class in favour of more liquid tradeable instruments,” Aon says.