Aon Benfield ILS Indices largely outperform 2012 returns


The Aon Benfield ILS Indices, a set of indices calculated using month-end pricing data for outstanding catastrophe bonds and insurance-linked securities saw impressive performance in 2013, largely outperforming 2012 returns.

The catastrophe bond and ILS market has seen a very strong year of returns in 2013, with declining issuance pricing seemingly not having any impact on secondary market returns as yet. Aon Benfield’s All Bond ILS, which tracks most of the outstanding cat bond and ILS issuance, returned 10.87% for the full-year 2013 beating 2012’s All Bond ILS return of 9.75%.

All of Aon Benfield’s ILS Indices posted positive returns for the final quarter of 2013, with the All Bond index up 1.98%, the BB-rated Bond index up 1.31%, the U.S. Hurricane Bond index up 2.06% and the U.S. Earthquake Bond index up by 1.04%.

For the full-year of 2013 all the Aon Benfield ILS indices made positive gains, with the All Bond, U.S. Hurricane Bond and U.S. Earthquake Bond indices all outstripping 2012 return performance. The BB-rated index only slightly underperformed 2012 by 40 basis points.

The Aon Benfield All Bond and BB-rated Bond ILS indices posted full-year returns of 10.87% and 7.11% in 2013, while the U.S. Hurricane and U.S. Earthquake Bond ILS indices posted full-year 2013 returns of 11.64% and 6.85%, respectively.

Impressively, the All Bond ILS index far outperformed all comparable fixed income benchmarks for the fourth quarter and for the full-year 2013, however it did not outperform the S&P 500 index this year due to the extraordinarily strong stock market returns.

Aon Benfield ILS Indices returns 2013

Aon Benfield ILS Indices returns 2013 - Source: Aon Benfield Securities Inc., Bloomberg

Looking ahead, Aon Benfield said in its latest ILS market report that it expects the catastrophe bond and ILS market to continue to deliver attractive returns, in the absence of major catastrophe events which impact the market. However, the lower spreads seen in 2013 will begin to be noticed.

Aon Benfield said that it expects a slight reduction in mark-to-market increases in 2014, compared to those seen in 2013, as the significantly lower spreads seen in 2013 filter through.

For comparison, the Swiss Re Global Cat Bond Total Return Index saw an annual return of 10.9% in 2013, very close to the performance of the Aon Benfield All Bond ILS index.

Read our other article on Aon Benfield’s latest quarterly ILS market report:

2013 a ground-breaking 12 months for ILS: Aon Benfield.

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