Aon Benfield Report Highlights Growth of Insurance-linked Securities

September 6, 2012

Catastrophe bond issuance for the last 12 months – June 2011 to June 2012 – rose to $6.43 billion – an increase of more than $2 billion over the same period in 2011, according to a report issued by Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield.

Highlights from the 12 months under review included a record Q1 issuance of $1.49 billion, eclipsing the previous record set in Q1 2011 of $1.02 billion. “A total of 30 transactions – including two deals from the life and health sector – closed during the period, compared with 24 transactions during the prior year period, with U.S. hurricane risk continuing to dominate the market, accounting for more than 50 percent of natural catastrophe issuance,” said the report.

“The proportion of catastrophe bonds covering U.S. earthquake risk increased slightly from 17 percent for the year ending June 30, 2011, to 20 percent for the same period in 2012. By comparison, Europe windstorm transactions decreased slightly from 21 percent to 17 percent in the same timeframe. Meanwhile, life and health issuance activity contributed $330 million of issuance. At June 30, 2012, total bonds on risk stood at $14.92 billion, an increase of $3.4 billion from June 30, 2011.”

Aon Benfield said its “ILS Indices posted positive returns during the 12 month period, with the All Bond and BB Rated Bond Indices reaching 7.4 percent and 7.86 percent respectively, compared to 2011 returns of 6.43 percent and 4.72 percent, while U.S Hurricane Bond and U.S. Earthquake Bond Indices posted returns of 7.60 percent and 4.38 percent respectively, for the period ending June 30, 2012.”

Aon Benfield Securities CEO Paul Schultz noted: “In the 12 month period under review, the insurance-linked securities sector clearly demonstrated its resilience following the global financial crisis, reaching its highest levels for both new issuance and outstanding volumes in four years.

“This strong performance is set to continue through the second half of 2012 and beyond, as conditions are appropriate for both sponsors and investors to utilize ILS as an effective risk transfer mechanism and as an asset class that yields healthy returns when compared to benchmark securities. We consider the ILS sector to be continually evolving, becoming ever more diversified and adaptable to clients’ needs.”

Source: Aon Benfield Securities

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