Annual catastrophe bond issuance reached a record $9.4 billion—an increase of 41 percent over the prior year period, according to the latest insurance-linked securities (ILS) sector report by Aon Benfield Securities.
The high volume of catastrophe bonds coupled with 11 sidecar transactions totaling $1.4 billion, and collateralised reinsurance vehicles, allowed alternative capital to capture approximately 20 percent market share of property catastrophe reinsurance volume during the 12 months to 30 June 2014.
Several records were set during the period, including the highest ever Q2 catastrophe bond issuance of $4.5 billion across 12 transactions.
H1 issuance also reached new heights with $5.9 billion of transactions brought to market, exceeding the prior year period by almost 50 percent.
As at 30 June 2014, total catastrophe bonds outstanding remained at a record high, with $22.4 billion of bonds on-risk, an increase of $4.6 billion from the previous year.
A total of 24 catastrophe bonds covering US perils, and five with Europe exposures were issued.
Four catastrophe bonds covering Japan perils were brought to market, compared to none in the prior year, proving the strong and increased interest in the use of the capital markets from Japanese sponsors.
Seventy percent of property catastrophe bonds used indemnity triggers covering regions such as Australia, Europe, Japan and North America.
An estimated $5 to 6 billion of new capital flowed into the sector during the 12 months, bringing total capital inflows to more than $10 billion over the past two years.
Meanwhile, market pricing conditions for ILS products continued to decline to attain historical lows, with sponsors benefitting from reductions of 20 percent or higher as investor demand kept pace with increased supply, allowing sponsors to expand coverage at competitive rates.
Paul Schultz, CEO of Aon Benfield Securities, said: "The 12-month period under review was one of the strongest ever for the ILS and wider alternative capital markets.”
“Sponsors received improved terms including increases in catastrophe bond maturity periods and a continued decrease in interest spreads to historical lows. Improvements in both pricing and terms and conditions also brought a record number of new sponsors to the market.”
On an annual basis, through 30 June 2014, all Aon Benfield ILS Indices posted gains. The Aon Benfield All Bond and BB-rated Bond Indices posted returns of 7.74 percent and 4.99 percent, respectively. The US Hurricane and US Earthquake Bond Indices returned 8.94 percent and 4.33 percent, respectively.
Each of the Aon Benfield ILS Indices outperformed most of the comparable fixed income benchmarks; the 3-5 Year BB High Yield Index and the S&P 500 index, however, produced superior returns.
