Cat Bond Issuance Hits 6-Year High: Aon Benfield ILS Report

Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, has issued it latest report – The Insurance-Linked Securities Second Quarter 2013 Update – which notes that “13 catastrophe bonds closed during the period, with a total value of $3.3 billion.”

The cat bond surge in the second quarter brings the amount issued in the first half of 2013 to just under $4.0 billion – 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 U.S. nationwide multi-peril,” said the report.

“As at June 30, 2013, the total catastrophe bond limit outstanding was $17.5 billion.”

The report also concludes that “market pricing conditions for ILS continued the downward shift from earlier in the year, stabilizing by the end of the second quarter at a level more than 40 percent lower than the fourth quarter of 2012.”

Paul Schultz, CEO of Aon Benfield Securities, said: “While we usually observe catastrophe bond issuance declining towards the beginning of the U.S. 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.

“In addition to these favorable 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 favorable pricing conditions are expected to persist, encouraging new and existing sponsors to the ILS market.”

The report also said: “For the quarterly period ending June 30, investment returns for the All Bond and BB-rated Bond Indices reached 2.20 percent and 1.33 percent respectively, while the U.S. Hurricane Bond and U.S. Earthquake Bond Indices recorded returns of 2.34 percent and 1.91 percent 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 percent and 8.16 percent respectively, and the U.S. Hurricane and U.S. Earthquake Bond Indices posting returns of 13.19 percent and 6.89 percent respectively.”

Aon Benfield issued a forecast for the full year 2013, indicating that it expects “ILS issuance to be in the region of $7 to $8 billion.”

Source: Aon Benfield Securities