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Aon forecasts busy Q1 for insurance-linked securities issuance and secondary trading


Aon Benfield Securities have published a report on the insurance-linked securities and catastrophe bond market during the fourth quarter of 2011. Similar to 2009 and 2010 the fourth quarter of 2011 was the most active quarter of the year for cat bond and ILS issuance with $1.99 billion (according to Aon Benfield’s numbers) issued in nine transactions. This represented 43% of the volume issued during the whole of 2011.

As we’ve said before every ILS market report contains slightly different numbers depending on what deals are included, such as life or private deals. Aon’s report doesn’t include the Vecta embedded value life securitization. You can read details of every cat bond and ILS transaction from the fourth quarter of 2011 in our Deal Directory.

The fourth quarter was U.S. hurricane heavy, as it tends to be, as sponsors get their hurricane coverage secured in advance of the January renewals on a multi-year basis. $1.5 billion of the issuance (so around 75%) provided coverage for U.S. wind in Q4 2011.

Of the nine transactions Aon Benfield refer to in their report, seven were based on an industry index trigger while one was a modelled loss and another an indemnity trigger transaction.

The report also discusses the Aon Benfield Securities’ ILS Indices. The indices all increased during the fourth quarter, with the All Bond and BB-Rated Bond indices rising by 1.58% and 1.71%, and the U.S. Hurricane Bond and U.S. Earthquake Bond indices increasing by 1.68% and 0.73% respectively. For the full year, 2011 saw all of the Aon Benfield Securities ILS Indices post gains although the gains made were significantly lower than in previous years due to the losses and market slowing issues faced in 2011. For example the All Bond index rose 10.89% in 2010 but only managed 1.87% over the full year of 2011.

The report states that both sponsors and investors overcame some formidable obstacles to finish the year on a high note and that this bodes well for the markets growth into 2012. Aon forecast a strong Q1 2012 with a strong pipeline of deals and they also expect the secondary market to maintain trading volumes at or above 2011 levels.

Paul Schultz, President of Aon Benfield Securities, said; “Strong investor demand for diversifying risk was witnessed in the fourth quarter of 2011, which facilitated a total upsizing of USD800 million across the ILS transactions brought to market. Secondary trading was also robust, with much activity in short-dated notes as investors sought to free up capital for new transactions.”

You can access the full report from Aon Benfield Securities here.

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