Aon Benfield has released it’s report reviewing the 1st quarter insurance-linked security market happenings. The first quarter of 2010 saw low total issuance of just $300m which is only 50% of 2009’s first quarter total, however returns for investors in the same period are much stronger than last year.
Catastrophe bond returns increased to 13.02% for the twelve months ending March 31st compared to 2.6% for 2009. That sort of growth is sure to keep the market buoyant for the moment. They see favorable conditions for the issuance of more bonds with investor demand high (due to the better returns). Aon Benfield expect between $5 and $6 billion of issuance during the whole of 2010.
On volatility of the asset class; Aon Benfield say that ILS continue to demonstrate that they are much less volatile an investment than typical market metrics such as the S&P500. This, combined with great returns are helping to encourage new investors to the market. We believe that we need to see more bonds issued with perils outside of the normal U.S. windstorm areas to keep investors keen and give them diversification opportunities.
Investors continue to look to the secondary market to fill their portfolios as issuance is not yet high enough to fill demand.
You can read the full report from Aon Benfield here (PDF format).