“Pipeline for new issuance remains strong for second half of year”


Catastrophe bond issuance has reached a six-year high, according to Aon Benfield Securities’ Insurance-Linked Securities (ILS) Second Quarter 2013 Update.

The report found a total of 13 catastrophe bonds closed during the period, with a total value of $3.3bn contributing to a first-half issuance total of just under $4bn – the highest level since 2007.

A broad range of coverage was offered during the quarter, including regional earthquake and hurricane, Turkey earthquake and Australia cyclone, as well as US nationwide multi-peril.

As of 30 June, the total catastrophe bond limit outstanding was $17.5bn.

Market pricing conditions for ILS continued the downward trend from earlier in the year, stabilising by the end of the second quarter at a level more than 40% lower than the fourth quarter of 2012.

The firm’s chief executive, officer Paul Schultz, said: “While we usually observe catastrophe bond issuance declining towards the beginning of the US hurricane season in June, this year the number of bonds being brought to market during the end of the second quarter remained high, in part due to the attractiveness of ILS pricing.

Favourable pricing conditions

“In addition to these favourable pricing conditions, sponsors secured capacity for longer-risk periods and, in some cases, with broader indemnity coverage.

“Looking ahead, the pipeline for new issuance remains strong for the second half of the year and favourable pricing conditions are expected to persist, encouraging new and existing sponsors to the ILS market.”

For the quarter ending 30 June, investment returns for the All Bond and BB-rated Bond Indices reached 2.20% and 1.33%, respectively, while the US Hurricane Bond and US Earthquake Bond Indices recorded returns of 2.34% and 1.91%, respectively. 

For the trailing 12 months, all indices outperformed the prior year period, with the Aon Benfield All Bond and BB-rated Bond Indices posting returns of 12.14% and 8.16%, respectively, and the US Hurricane and US Earthquake Bond Indices posting returns of 13.19% and 6.89%, respectively.

The full-year 2013 ILS issuance forecast by Aon Benfield is in the region of $7bn to $8bn.