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Catastrophe Bond Returns Double for Investors: Aon Benfield ILS Study


Posted on 19 Apr 2013 by Neilson

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AonAon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today launches its latest report on the insurance-linked securities (ILS) market, which reviews the key trends witnessed during the first quarter of 2013.

The Insurance-Linked Securities First Quarter Update 2013 reveals that, for the annual period ending March 31, investment returns for  the Aon Benfield All Bond index had reached 12.69 percent (2012: 5.90 percent).

For the quarter under review, all Aon Benfield ILS Indices posted mark-to-market gains, with the All Bond index rising to 3.13 percent (2012: 0.54 percent), the BB-rated Bond index increasing to 2.25 percent (2012: 0.53 percent), the U.S. Hurricane Bond index increasing to 2.29 percent (2012: 0.28 percent), and the U.S. Earthquake Bond index increasing to 2.38 percent (2012: 0.14 percent).

Meanwhile, new catastrophe bond issuance for the period reached USD670mn, with a further USD1.12bn of bonds in the process of being marketed.

A total of three catastrophe bonds closed during the first quarter; the largest, Caelus Re 2013 Ltd., provides USD270mn of capacity to sponsor Nationwide Mutual for U.S. hurricane and earthquake exposures.

Other catastrophe bonds that closed in Q1 comprised Everglades Re Ltd. - which provides USD250mn of Florida hurricane capacity to sponsor Citizens Property Insurance Corporation - and Vitality Re IV Limited, which issued USD150mn of notes related to health risks for sponsor Aetna Life Insurance.

Paul Schultz, Chief Executive Officer of Aon Benfield Securities, said: "Capital flows into the ILS sector materially changed the tone of the market in the first quarter of 2013.  Risk adjusted pricing decreases benefited clients and visibility of the catastrophe bond market has never been higher.  Momentum gained in the first quarter of 2013 has most certainly carried forward into the second quarter of 2013, both in terms of capacity and price."

Aon Benfield Securities forecasts strong ILS issuance volumes for 2013, with a solid pipeline for the first half of the year, primarily driven by U.S. risks.


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