Carriers showed an increased interest in insurance-linked securities in 2012, producing a record year in cumulative-bond activity, says Aon Benfield.
“Fourth quarter 2012 ILS [insurance linked securities] issuance volumes were strong, adding to the consistently impressive quarterly performances for the year as a whole,” says Paul Schultz, CEO of Aon Benfield Securities.
For 2012, catastrophe-bond issuance increased 35 percent from 2011, and was at its highest level since 2007, the report says.
The year 2012 closed with $6.25 billion in catastrophe-bond issues compared to $4.6 billion the previous year. The bonds were primarily driven by U.S. risks as “sponsors looked to secure capacity ahead of hurricane season.”
For the past four years, the fourth quarter proved the most active period for catastrophe bond placements. In 2012 there was $1.89 billion placed compared to $1.99 billion in 2011. Of the past four years, 2010 had the most active fourth quarter with $2.39 billion in placement.
Total bonds outstanding in 2012 were at their highest level since 2007, producing a new record, with $16.54 billion, compared to $16.05 billion in 2007. From the previous year, total bonds outstanding rose 19 percent, from close to $14 billion in 2011.
Aon Benfield says there was a number of repeat sponsors, including SCOR Global P&C SE and United Services Automobile Association.
Compass Re Ltd. Series 2012-1, from National Union Fire Insurance Co. of Pittsburgh, an affiliate of American International Group, secured the single largest transaction in the quarter at $400 million. The insurers total catastrophe bond capacity stands at $1.85 billion.
The U.S. hurricane bond index posted strong returns of 10.5 percent in 2012, says the report, beating 2011's 6.1 percent. U.S. Earthquake Bond index was declared “stable” posting a return of 5 percent compared to 5.4 percent for the prior year.
“In the absence of severe catastrophic events, we expect 2013 to be another positive year of returns for ILS market,” says Aon Benfield.
In an e-mail, Schultz says the forecast is for a “healthy first half 2013 issuance pipeline, and a strong year in general, with between [$6 billion and $7 billion] in ILS issuance. Should we achieve results at the high end of the forecast we would surpass results in 2012.”
Superstorm Sandy did have an impact on bonds, the report says. Besides hitting the U.S. on Oct. 29, it caused $2.5 billion in economic damage to the Caribbean and $108 million in insurance losses in Canada.
Between Oct. 19 and Nov. 16, U.S. hurricane bonds decreased 4.1 percent while U.S. multi-peril bonds decreased 7.9 percent.
Despite the losses, the reinsurance broker says by the end of the year, “no bonds had been impaired due to Sandy.”
Update: Additional comments from Schultz on Jan. 16 at 9:58 a.m. EST.
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