Aon Benfield Securities has released its latest Insurance Linked Securities (ILS) report, which examines the key trends in the ILS sector during the second quarter of the year.
The ILS Second Quarter Update 2011 reveals that five catastrophe bonds with total capital of USD741 million were issued during the period, compared with the nine issuances in Q2 2010 that raised a total of USD2.3 billion in the capital markets.
The report states that compared to the same period in 2010, the second quarter provided less volume for several reasons: sponsors and investors alike continued to evaluate the substantial model changes from RMS which in turn delayed a number of issuances pending further review by sponsors, and assessment of the natural hazards in Japan and New Zealand continued to occupy the market.
Furthermore the report adds, Japanese insurers have observed that the Muteki catastrophe bond provided the expected protection (and alternative to traditional reinsurance). As a result, insurers have demonstrated a heightened interest in ILS and any rate hardening in the Japanese market will also increase the demand for securing earthquake coverage through the capital markets, as insurers seek to lock-in rates for an extended time.
The Aon Benfield All Bond, BB-rated Bond, and U.S. Earthquake Bond indices posted quarterly returns of 1.26 percent, 1.49 percent, and 2.20 percent, respectively, and all exceeded comparable returns for the quarter ended June 30, 2010. The performance was driven by price increases across bonds covering non-U.S. perils. For the U.S. Hurricane Bond index, which was essentially flat to the prior quarter, coupon returns were negated by seasonal adjustments heading into the U.S. Hurricane season.
Paul Schultz, President of Aon Benfield Securities, said: “Primary issuance in the second quarter of 2011 was considerably lighter than the same period in 2010, but catastrophe bond issuance from repeat issuers remained strong, highlighting the continued confidence of both sponsors and investors in capital markets capacity. Secondary trading levels were substantially higher on a year-over-year basis, in part due to lower primary issuance. Events in Japan and New Zealand at the beginning of the year, and the recent RMS catastrophe model changes, have caused some participants to pause for re-evaluation, but we expect ILS issuance to be strong as we move into the latter half of the year, and especially during the fourth quarter of 2011.”
Source : Aon Benfield
