Insurance-Linked Securities Market Continues to Grow

The resurgence of the insurance-linked securities (ILS) market continued in the second quarter of 2013, with catastrophe bond issuance at a six year high, according to Aon Benfield Securities.

The investment banking division of reinsurance intermediary and capital advisor Aon Benfield issued its
‘Insurance-Linked Securities Second Quarter 2013 Update’,
which reveals that 13 catastrophe bonds closed during the period, with a total value of US$3.3bn, contributing to a first half issuance total of just under US$4.0bn – the highest level since 2007.

A broad array of coverage was offered during the quarter, including regional earthquake and hurricane, Turkey earthquake and Australia cyclone, as well as US nationwide multi-peril. As at June 30, 2013, the total catastrophe bond limit outstanding was US$17.5bn.

Market pricing conditions for ILS continued the downward shift from earlier in the year, stabilising by the end of Q213 at a level more than 40% lower than Q412.

“While we usually observe catastrophe bond issuance declining towards the beginning of the US hurricane season in June, this year the number of bonds being brought to market during the end of the second quarter remained high, in part due to the attractiveness of ILS pricing,” said Paul Schultz, chief executive officer (CEO) of Aon Benfield Securities.

“In addition to these favourable pricing conditions, sponsors secured capacity for longer risk periods and, in some cases, with broader indemnity coverage. Looking ahead, the pipeline for new issuance remains strong for the second half of the year, and favourable pricing conditions are expected to persist, encouraging new and existing sponsors to the ILS market.”

The report highlights that, for the quarterly period ending June 30, investment returns for the all bond and BB-rated bond indices reached 2.20% and 1.33% respectively, while the US hurricane bond and US earthquake bond indices recorded returns of 2.34% and 1.91% respectively.

For the trailing 12 months, all indices outperformed the prior year period, with the Aon Benfield all bond and BB-rated bond indices posting returns of 12.14% and 8.16% respectively, and the US hurricane and US earthquake bond indices posting returns of 13.19% and 6.89% respectively.

Aon Benfield forecasts full year 2013 ILS issuance to be in the region of US$7bn to US$8bn.

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