1 June 2012 Alternative Risk Transfer

Record cat bond issuance in Q1

A record number of catastrophe bonds were issued in the first quarter of the year, continuing the strong momentum in this sector seen at the end of 2011, according to reports by both Aon Benfield Securities and Willis Capital Markets & Advisory, part of the Willis Group.

Nine bonds were closed in the first quarter of this year from new and repeat sponsors, according to the Aon Benfield Securities report, Insurance-Linked Securities First Quarter Update 2012. According to Aon Benfield Securities, the previous record Q1 issuance had been $1 billion in 2011.

The Willis report, Strong Start to 2012 Sees Record First Quarter Issuance, also noted that the market has strong momentum.

“Although spread levels have widened somewhat, we believe the medium-term outlook for the market remains encouraging. Growth in insured exposures should continue to drive capital markets’ involvement in the catastrophe risk sector,” said Bill Dubinsky, head of insurancelinked securities (ILS) at Willis Capital Markets & Advisory.

Aon Benfield’s ILS Indices posted negative returns for the quarter, principally reflecting a widening of spreads. The All Bond and BB Rated Bond Indices decreased by 0.06 percent and 0.14 percent, respectively. The indices for both US Hurricane Bonds and US Earthquake Bonds also decreased, by 0.32 percent and 0.17 percent, respectively, during the same period. For the previous 12 months, all indices posted gains.

“We are very pleased with the record volumes of ILS activity we saw in the market during the first quarter of 2012, which highlights the importance of ILS as both a risk transfer vehicle and an investment product,” said Paul Schultz, chief executive officer of Aon Benfield Securities.

“We believe that the market fundamentals are conducive to further growth in this sector and we’re very pleased that issuance in the first quarter of 2012 came from both new and repeat sponsors.”

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