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Wednesday 31 August 2011
Author: Russell Group

Aon Benfield Securities, the investment banking subsidiary of AonCorporation has released its annual Insurance Linked Securities (ILS) report, which examines the trends witnessed in the ILS sector over the 12-month period ending 30 June 2011.

The Report “Consistency and Confidence” reveals that 24 separate catastrophe bond transactions resulted in an annual issuance volume of $4.4 billion to June 30, 2011 – a slight decrease from the $4.7 billion across 21 transactions seen in the prior year period. Also, sidecars experienced resurgence in 2011, further demonstrating investors’ interest to continue to provide fresh capital after market losses. Catastrophe bonds outstanding at June 30, 2011 totaled $11.5 billion, with $37.6 billion of cumulative catastrophe bond issuance since 1997.

Paul Schultz, President of Aon Benfield Securities, said: “Consistency in issuance, including strong participation from repeat issuers, demonstrated the continued reliance of both sponsors and investors on capital markets capacity. Renewed interest in sidecar structures also demonstrates the flexibility of the ILS market to provide fresh capital following market losses.Despite the effects of both the Great East Japan Earthquake on March 11 and the major updates of the RMS U.S. Hurricane and Europe Windstorm models, we anticipate a good catastrophe bond issuance pipeline in the historically active second half of the year. Additionally, we believe the fundamentals are positive for market growth in 2012 and beyond.”

U.S. hurricane risk continued to dominate the catastrophe bond market in the 12 months to June 30, 2011, accounting for 46 percent of natural catastrophe issuance while U.S. earthquake risk and Europe windstorm risk accounted for 15 percent and 19 percent, respectively.

All four of Aon Benfield’s ILS Indices posted gains in the 12-month period to June 30, 2011. The Aon Benfield All Bond and BB-rated Bond indices recorded annual returns of 5.97 percent and 4.52 percent respectively, while the returns on the U.S. Hurricane and U.S. Earthquake Bond indices were 8.51 percent and 7.21 percent respectively. The current annual returns fell below comparable returns for the prior year period, with the exception of the U.S. Earthquake Bond index, which performed marginally better. The decrease was primarily due to the effects of global catastrophes and downgrades which had led to mark-to-market decreases in 2011.