NU Online News Service, April 21, 1:08 p.m. EDT

The return on catastrophe bonds increased 11 percentage points over the last twelve months with North America Wind bonds leading the pack, according to a report from Aon Benfield Securities.

It found that overall returns on cat bonds increased to 13.02 percent for the twelve months ending March 31 from its 2.6 percent return last year.

On a three-month basis, the bonds rose close to 3 percentage points from 0.95 percent return for last year's first quarter to 3.39 percent this year.

Leading the insurance-linked securities sector was North America Wind at 14.47 percent return for the twelve months compared to 0.30 percent last year. For the three months, the bonds stood at 4.12 percent compared to 0.51 percent for the same period last year.

Paul Schultz, president of Aon Benfield Securities, said in a statement, "With issuance low in the first quarter, investors looked to the secondary market to grow their portfolios and manage inflows. This demand for bonds continued to push prices to levels unseen in previous years."

He noted, "Toward the end of the quarter, investors gained an optimistic view of the forward calendar, and the tide shifted to a more balanced market with investors looking to rebalance portfolios and release capital for new deals. Short-dated bonds exposed to U.S. Wind traded quite actively for this reason."

The securities did not outperform benchmark indexes such as the S&P 500 index during the period, Aon Benfield pointed out, but the cumulative return for the bonds has exceeded these benchmarks since January 2008.

Aon Benfield Securities went on to say that the securities "demonstrate a lower level of volatility," which means investors "enjoy greater stability versus general market metrics."

Bonds issued in the quarter amounted to $300 million, well below past first-quarter issuance going back to 2006, the broker noted. However, Aon Benfield Securities noted that the first quarter is typically slower than other quarters and that in the past, the first quarter is affected by spillover, or bond transactions not completed in the prior quarter. This was not the case this year.

The recent earthquake and windstorm activity has not caused losses to any outstanding bonds, the report said, and that has had a minimal effect on market pricing.

Aon Benfield Securities said it anticipates that during 2010 there will be $5 billion to $6 billion in new bond issuance.

The report is online at http://tinyurl.com/y2tavsq.

Aon Benfield Securities is the investment banking division of reinsurance broker Aon Benfield, which is a subsidiary of Chicago-based insurance broker Aon Corp.