Strong outlook for ILS deals

The catastrophe bond market saw a particularly bullish end to 2010 after a strong year overall. And this trend is predicted to continue throughout 2011, according to a report by Aon Benfield Securities on the market.

The company’s ILS Fourth Quarter Update shows that, during the last quarter of 2010, the total value of bonds issued exceeded the same period in 2009 by some $400 million. In 2010 overall, 23 bonds were issued worth $4.8 billion compared with 18 transactions worth $3.4 billion in 2009.

The report also notes that while the first half of 2010 was characterised by the issuance of bonds covering US hurricane risk, the fourth quarter gave rise to “a more diverse range of securities” that also provided protection against European windstorm and Japanese earthquake perils. Six bonds covering European windstorm were issued, for example, worth €525 million.

“The fourth quarter of 2010 put finishing touches on a year that witnessed a resurgence in ILS, and we expect this trend to continue into 2011,” said Paul Schultz, president of Aon Benfield Securities.

“As the broader reinsurance markets continue to experience price softening, ILS products will remain highly competitive this year, offering sponsors a multi-year, fully collateralised, fixed-price risk transfer option that has its own dedicated and experienced investor community.”