Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today launches its annual report on the insurance-linked securities (ILS) market, which reviews the key trends witnessed during the 12-month period to June 30, 2013.
The report, entitled ‘Capital Revolution – ILS Market Expands to New Heights’, reveals that annual catastrophe bond issuance reached USD6.7 billion as of June 30, 2013 and the total capacity of all catastrophe bonds currently active in the market – also known as “on-risk” – had reached a record USD17.5 billion, surpassing the previous record of USD16.2 billion at June 30, 2008.
A total of 27 transactions – including three deals from the life and health sector – closed during the 12-month period under review, with indemnity-based transactions accounting for over half the property catastrophe bonds issued. The ILS market continues to provide enhanced coverage relative to prior years, including coverage for hard-to-model perils and longer risk periods.
Meanwhile Aon Benfield’s ILS Indices, calculated by Thomson Reuters, all posted gains during the 12-month period, with the All Bond and BB-rated Bond Indices posted returns of 12.14 percent and 8.16 percent, respectively; and the U.S. Hurricane and U.S. Earthquake Bond Indices returning 13.19 percent and 6.89 percent, respectively.
Each bond index benefitted from strong mark-to-market gains, especially throughout the first half of 2013 as investor demand drove spreads to historically low levels.
On an annual basis, each Aon Benfield ILS Index outperformed comparable fixed income benchmarks.
Paul Schultz, Chief Executive Officer of Aon Benfield Securities, said: “In the 12 months under review, the insurance-linked securities sector witnessed large capital inflows from both existing and new investors. Since the beginning of 2013, as estimated USD3 billion in new capital has flowed into the ILS market. Sponsors launched new issuances to satisfy this investor demand, which resulted in decreased spreads and brought the pricing of ILS into the realm of the traditional reinsurance market. Given the current strong demand for ILS products, we believe that the 2013 calendar year could prove to be an inflexion point for the sector, with momentum for new issuances continuing to build as investors and sponsors seek to leverage the favorable market conditions.”
Aon Benfield Securities forecasts a full year 2013 ILS issuance of between USD7-8 billion.
