Aon ILS Indices all posted gains in 2016


Investments in insurance-linked securities (ILS) and catastrophe bonds continued to outperform some comparable benchmarks in 2016, despite further reinsurance rates and ILS price declines, according to the latest report from Aon Securities.

During 2016 the Aon ILS Indices, which track the performance of investment baskets of catastrophe bonds, continued the trend seen in 2015 with all of the indices posting gains.

Furthermore, in 2016 all of the Aon ILS Indices outperformed the previous year’s annual returns, which Aon Securities says was driven by spread tightening in the secondary marketplace and the lack of large catastrophe events.

When compared with the previous year comparable benchmarks bounced back against the Aon ILS Indices somewhat in 2016. Relative to comparable fixed income benchmarks the Aon All Bond Index outperformed again in 2016, but unlike in 2015 came in slightly below both the S&P 500 and the 3- 5 year BB U.S. High Yield Index.

The Aon All Bond and BB-rated catastrophe bond indices returned 7.03% and 4.97% in 2016, respectively. While the peril specific U.S. Hurricane and U.S. Earthquake cat bond indices returned 7.73% and 4.84%, respectively.

Aon ILS Indices

Aon ILS Indices performance in 2016 versus benchmarks

Available returns in the global catastrophe bond market have reduced in recent times, but it’s clear that returns are still very attractive when compared with comparable benchmarks. The diversification and lack of correlation benefits delivered by ILS and catastrophe bond investments continue to attract investors to the asset class.

Furthermore, that the sector continues to perform well in challenging financial market times and during a time when reinsurance rates and cat bond pricing is falling, will only serve to further increase the acceptance of the space, ultimately supporting continued market expansion.

Artemis discussed recently how the total return of the catastrophe bond market in 2016 came in more than 2.5% higher than the previous year, with the Swiss Re Index, and other market indices and brokers typically reporting a 6% to 7% cat bond total return in 2016.

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