Looking back on 2010, experts have decided that it was a good year for insurance linked securities (ILS). A report released today by
Aon Benfield Securities' "ILS Fourth Quarter Update" highlights property catastrophe bonds' strong performance during that timeframe, when 10 bonds of totaling $2 billion were brought to market, compared to $1.6 billion in Q4 2009.
While the first half of 2010 was characterized by the issuance of bonds covering U.S. hurricane risk, Aon says that Q4 gave rise to a more diverse range of securities that also provided sponsors with protection against European windstorm and Japanese earthquake perils. The European windstorm catastrophe bonds, in particular, were well supported in 2010, with six transactions totaling EUR 525 million coming to market.
The report goes on to note that the year saw 23 property catastrophe bond transactions with a notional issuance volume of $4.8 billion were structured. These numbers topped 2009, which had 18 transactions worth $3.4 billion.
Looking forward, Aon forecasts strong investor interest for ILS products in 2011, with several dedicated ILS funds already having stated their increased commitment to the sector. Additionally, the firm says that the Dodd-Frank Act has brought additional compliance procedures to the catastrophe bond ratings process. However, Dodd-Frank is not expected to impair future ILS market growth.
“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, Aon Benfield Securities' President. "As the broader reinsurance markets continue to experience price softening, ILS products will remain highly competitive this year, offering sponsors a multi-year, fully collateralized, fixed price risk transfer option that has its own dedicated and experienced investor community.”
