Capital inflows, deal pipeline to help insurance-linked securities market to $6 billion in 2012: Aon Benfield

The latest Q2 insurance-linked securities and catastrophe bond market report to be published comes from Aon Benfield Securities, the investment banking division of reinsurance broker Aon Benfield. The numbers in the report tally with our Deal Directory number of $2.1 billion of issuance in the quarter bringing the half-year total to approximately $3.6 billion. Aon Benfield Securities attribute much of the success of the quarter to investors continuing to deploy new capital into the space.

The report covers the seven 144a catastrophe bond transactions which came to market during Q2. Aon Benfield say that the market maintained the strong momentum it had picked up during the record Q1, as both new and repeat sponsors bought deals to the table. The report says that both seasoned investors and newer entrants to the ILS and cat bond space have continued to receive strong capital inflows during the quarter.

After a negative Q1, Aon Benfield’s ILS Indices, which track the returns of the outstanding ILS market, rebounded in Q2 to all post mark-to market gains. Helped by the unseasonal secondary price return increases that we’ve discussed on Artemis a number of times, Aon’s All Bond and BB-Rated Bond Indices increased by 2.74% and 2.49% respectively, while their U.S. Hurricane Bond and U.S. Earthquake Bond Indices increased by 1.94% and 2.32%. The returns being exhibited by these types of indices for Q2 of 2012 should help to stimulate further investor interest in the sector as there aren’t many investments that could offer a quarterly return above 2.5%.

Paul Schultz, Chief Executive Officer of Aon Benfield Securities, said; “The Q2 ILS issuance figures were excellent, and brought the total issuance for the first half of 2012 very close to record levels. Issuance for the first half stood at $3.6bn, which was just short of the all time high of $3.8bn achieved during the same period in 2007. The pipeline for the remainder of 2012 remains strong, and we are pleased to see healthy levels of capital inflows from both seasoned investors and newer entrants to the ILS sector.”

It’s encouraging to hear that Aon Benfield expect a strong forward pipeline of deals given their level of involvement in the market. An active pipeline of deals is a necessity while such high levels of capital flow into the space. Investors need new deal opportunities to put capital to work and ILS fund managers need deals to allow them to keep their funds open to new subscriptions. It is also encouraging to hear that they continue to push for the upper end of their forecast for issuance volume in 2012 and Aon Benfield Securities still believe that we will see around $6 billion of issuance this year.

You can access the full report from Aon Benfield Securities via their press release here.