26 April 2013 Reinsurance

Catastrophe bond returns double for investors

Investors in catastrophe bonds enjoyed record returns in the 12 months to March 31, 2013.

A report by Aon Benfield Securities showed that for the annual period ending March 31, investment returns for the Aon Benfield All Bond index reached 12.69 per cent compared with 5.9 per cent in 2012.

The broker’s Insurance-Linked Securities First Quarter Update 2013 revealed that all Aon Benfield ILS Indices posted mark-to-market gains, with the All Bond index rising to 3.13 per cent (2012: 0.54 per cent), the BB-rated Bond index increasing to 2.25 per cent (2012: 0.53 per cent), the US Hurricane Bond index increasing to 2.29 per cent (2012: 0.28 per cent), and the US Earthquake Bond index increasing to 2.38 per cent (2012: 0.14 per cent).

Meanwhile, new catastrophe bond issuance for the period reached $670 million, with a further $1.12 billion of bonds in the process of being marketed.

A total of three catastrophe bonds closed during the first quarter. The largest, Caelus Re 2013, provided $270 million of capacity to sponsor Nationwide Mutual for US hurricane and earthquake exposures.

Other catastrophe bonds that closed in Q1 comprised Everglades Re, which provides $250 million of Florida hurricane capacity to sponsor Citizens Property Insurance Corporation – and Vitality Re IV Limited, which issued $150 million of notes related to health risks for sponsor Aetna Life Insurance.

“Capital flows into the ILS sector materially changed the tone of the market in the first quarter of 2013,” said Paul Schultz, CEO of Aon Benfield Securities. “Risk adjusted pricing decreases benefited clients and visibility of the catastrophe bond market has never been higher. Momentum gained in the first quarter of 2013 has most certainly carried forward into the second quarter of 2013, both in terms of capacity and price.”

Aon Benfield Securities forecasts strong ILS issuance volumes for 2013, with a solid pipeline for the first half of the year, primarily driven by US risks.

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