$16.5 billion catastrophe bond market at year-end 2012 a record, says Aon Benfield

The catastrophe bond market finished 2012 on a high reaching a record for the total volume of cat bonds outstanding at the end of the year of just over $16.5 billion, according to reinsurance broker Aon Benfield’s figures in its annual review of the catastrophe bond market. Issuance of new cat bonds was at the highest level since 2007, with around $6.3 billion of deals closing in 2012 which is 35% up on 2011, helping the market reach a new record size.

Aon Benfield’s numbers differ slightly from our own, with its total issuance for 2012 coming out at $6.251 billion, while we recorded $6.339 billion of deals in our cat bond and ILS Deal Directory. This is because Aon do not include some private deals and some life/health deals may also not be included.

The size of the outstanding catastrophe bond market at year-end 2012 - Source: Aon Benfield Securities

Aon Benfield said that the fourth-quarter of 2012 saw a number of repeat sponsors, including SCOR (Atlas Reinsurance VII), USAA (Residential Reinsurance 2012-2)) and National Union and Fire Insurance Company of Pittsburgh all successfully issuing new cat bonds. Compass Re 2012-1, issued by AIG affiliate National Union and Fire Insurance Company of Pittsburgh became the largest single tranche of cat bond risk issued in Q4 at $400m. The successful completion of that deal takes total cat bond capacity of the AIG affiliate to $1.85 billion ($400m Compass Re Ltd. (Series 2012-1), $575m Compass Re Ltd. (Series 2011-1), $450m Lodestone Re Ltd. (Series 2010-2) and $425m Lodestone Re Ltd. (Series 2010-1)).

Transactions tended to be upsized in the fourth-quarter as the market remained receptive to new cat bond deals. Strong capital inflows from investors were a feature of Q4 despite any uncertainty from the loss estimate for hurricane Sandy. Q4 deals also provided a good amount of diversity with risks from Mexico, Europe and also mortality coming to market. Details on every Q4 transaction can be found in our Deal Directory.

Catastrophe bond issuance by quarter - Source: Aon Benfield Securities

Aon Benfield is bullish for the cat bond markets prospects in 2013, saying that strong issuance volumes are expected to continue. It expects a solid pipeline for the first half of 2013, driven primarily by U.S. risk, likely from repeat sponsors who have deals maturing and also those seeking to secure cover in advance of the U.S. hurricane season.

Read our article from last week where we discuss comments in Aon Benfield’s reinsurance market report about the growing trend for reinsurers to manage investment funds: Reinsurers managing insurance-linked funds for investors is the future.

Read about every cat bond issued in 2012, and prior, in our Deal Directory.