| Sept 5
Sept 5 Sales of catastrophe bonds, which let
reinsurers and insurers transfer risk to capital markets, have
reached a four-year high and are expected to hit $6 billion by
the end of the year, Aon Benfield said on Wednesday.
Cat bond issuance totaled nearly $6 billion in 2008 before
falling sharply as the financial crisis struck, but the market
for cat bonds has since improved as investors' memories of the
crisis faded, soothed by double-digit returns for many ILS.
New issuance and outstanding volumes of cat bonds have seen
a growth of $2 billion in the first quarter of 2012, compared
with the same period in 2011, Aon's investment banking division,
Aon Benfield Securities, said in a report.
A number of new companies backed by hedge funds have entered
the market in recent months, lured by the promise of higher
yields in the asset class.
Two new rated Bermuda-based reinsurers were launched in 2012
- PAC Re, and Dan Leob's Third Point Re, which formed in
February 2012 with $785 million in capital.
"New capital flowing into the reinsurance sector is
currently around $5 billion, with around $3 billion of that
moving into the Insurance Linked Securities sector and the
remainder into permanent capital facilities," Aon Benfield
Securities Chief Executive Paul Schultz said.
In the current low yield environment, the higher yields
available from investing in insurance risk are very attractive
to capital market investors, said Schultz, who added that he
expected annual issuance is of cat bonds to reach $6 billion.
The Aon Benfield ILS indices posted annual gains for the
year concluding June 2012 - with the U.S. Hurricane and U.S.
Earthquake Bond indices returning 7.60 percent and 4.38 percent,
respectively, while the All Bond and BB rated Bond indices
posted returns of 7.40 percent and 7.86 percent, respectively.
Since the first cat bond in 1996, ILS have been used to
transfer a wide range of risks from natural catastrophes to life
insurance, with the catastrophe bond market generating $44
billion of cumulative issuance.