ILS issuance 'in line with 2010 forecast'

Aon Benfield Securities says that issuance of insurance-linked securities (ILS) was in line with expectations in the third quarter.

The company issued a report, Insurance–Linked Securities Third Quarter Update 2010, which said that two catastrophe bonds were brought to market during the period, transferring a total of $232 million of risk into the capital markets.

As of September 30, 2010, a total of $2.8 billion of new ILS transactions had been brought to market in 2010 and $11.1 billion of catastrophe bonds were outstanding. Paul Schultz, President of Aon Benfield Securities, said: “Year-to-date issuance in the ILS market has been dominated by transactions covering US Hurricane, pushing investors’ exposure to previously unseen levels.

"This phenomenon has led to strong investor demand for insurance-linked securities without US Hurricane risk, in an ongoing attempt to achieve diversification across their portfolios. With some rebalancing of investors’ portfolios and scheduled upcoming maturities, demand for U.S. Hurricane risk will improve into the fourth quarter.”

Secondary trading during Q3 was variable, with heavy trading volumes in short-dated U.S. Hurricane and Europe Windstorm bonds seen in August and September. Throughout the quarter, investor demand in the secondary market remained strong.

The report also details the Aon Benfield ILS Indices, which posted exceptional returns due to an overall increase in demand for catastrophe bonds and a mild US Hurricane season up to September 30.