The catastrophe bond market evolved in size and variety in 2012, Swiss Re Ltd. said in a report Friday.

“Swiss Re Cat Bond Indices: Year in Review 2012” notes that the catastrophe bond market closed the year at an all-time high of $14.6 billion on a market value basis for the 115 bonds making up the Swiss Re Global Cat Bond Indices.

Swiss Re said insurance-linked securities have a “strong value proposition” for investors, especially given the historically low interest rates and broad uncertainty in the global economy. Moreover, the ILS market has become more welcoming to insurers in regard to pricing as well as coverage terms, as it has experienced a degree of convergence with the traditional reinsurance market, the report states.

Last year demonstrated investors' increased willingness to accept more complex types of coverage and to issue bonds with indemnity-based and aggregate triggers.

“In the early years of the market, both insurers and reinsurers looked to the cat bond market primarily as an instrument to hedge tail catastrophe risk using transparent and parametric triggers,” the report states. “As the market evolved and investors have become more sophisticated, insurers have sought to securitize riskier layers using indemnity triggers which more closely reflect their ultimate net losses. In 2012 this trend became more pronounced as investors accepted more complex risks including aggregate indemnity, commercial indemnity and residual pool risk.”

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More indicators of the health of the catastrophe bond market became apparent in the wake of Superstorm Sandy, the report states. While a number of bonds exposed to Northeast hurricanes were significantly marked down, with all exposed bonds suffering at least minor mark-to-market losses, bonds not exposed to Northeast hurricanes were mainly unaffected by the storm and continued to trade at similar levels.

“Issuance has not appeared to be hindered by Hurricane Sandy,” the report states. “Less than two weeks after the storm, USAA tested the market by launching Residential Re 2012-II. The deal was upsized and all four tranches were priced at or below guidance, which is particularly notable as it included Northeast hurricane risk.”