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The level of catastrophe bonds outstanding at the end of 2012 reached a record $16.54 billion, according to a report issued Tuesday by Aon Benfield Securities.
The report, “Insurance-Linked Securities, Fourth Quarter 2012 Update,” said a total of $6.25 billion of new catastrophe bonds closed in 2012, an increase of more than 35% from 2011 and the highest issuance volume since 2007.
“Fourth quarter 2012 ILS issuance volumes were strong, adding to the consistently impressive quarterly performances for the year as a whole,” Paul Schultz, CEO of Aon Benfield Securities, said in a statement.
The report notes that in addition to repeat sponsors, the largest single transaction of the quarter was Compass Re 2012, a bond that secured $400 million of U.S. hurricane and earthquake capacity for the National Union Fire Insurance Co. of Pittsburgh, Pa., an affiliate of New York-based American International Group.
“A number of transactions were successfully upsized as sponsors benefited from investors' strong capital inflows,” the report states. “New issuance continued to be driven by U.S. risks; however, investors were also provided with diversity from Mexico, Europe and mortality risks.”
The demand for ILS was also reflected in the secondary market, the report noted.
“The secondary market began the quarter with many investors paying premiums to secure bonds,” according to the report. “In October, U.S. hurricane bonds on their final risk season began trading at levels reflecting many investors' views that the season would end without a loss.”
Aon Benfield Securities is the investment banking division of global reinsurance intermediary and capital adviser Aon Benfield, a unit of London-based Aon P.L.C.