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Catastrophe bond issuance totals $2.1B in second quarter: Aon Benfield

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Capital continues to flow into the reinsurance industry via catastrophe bonds, according to a report released Wednesday by reinsurance intermediary Aon Benfield Inc.

The report, “Insurance-Linked Securities Second Quarter Update 2012,” notes that seven catastrophe bond transactions totaling $2.1 billion closed during the quarter. The transactions feature both new and repeat sponsors and continue a trend of capital moving into the sector via ILS, the unit of London-based Aon P.L.C. noted.

Two Japanese cedents, Tokyo-based Zenkyoren Ltd. and Tokyo-based Mitsui Sumitomo Insurance Co. Ltd., returned to the market in 2012. “Japan sponsors continue to utilize catastrophe bonds as part of their overall risk transfer program,” the report states.

The report also notes a renewed interest from European insurers in ILS in light of uncertainty caused by the ongoing sovereign debt crisis and the pending Solvency II regulatory framework.

“This high level of uncertainty has increased concern among many cedents about the security of traditional reinsurance and the potential for a shortfall on recoveries following a major catastrophe,” the report states. “Although the overall probability of a failure to pay is very small, risk managers and sponsors alike are increasingly taking a more prudent approach to counterparty credit risk.”

Paul Schultz, CEO of Aon Benfield Securities, noted that the total issuance for the first half of 2012 were very close to record levels.

“Issuance for the first half stood at $3.6 billion, which was just short of the all-time high of $3.8 billion achieved during the same period in 2007,” Mr. Schultz said in a statement. “The pipeline for the remainder of 2012 remains strong, and we are pleased to see healthy levels of capital inflows from both seasoned investors and newer entrants to the ILS sector.”