Alternative capital captures 20 percent of catastrophe reinsurance market, according to Aon Benfield ILS report

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Sep 10, 2014, 02:31 ET

CHICAGO, Sept. 10, 2014 /PRNewswire/ -- Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today launches its annual report on the insurance-linked securities (ILS) sector, which analyses the key trends witnessed in the 12 months to June 30, 2014.

The report, Capital Revolution—Alternative Markets Fuel Dynamic Environment, reveals that annual catastrophe bond issuance reached a record USD9.4bn – an increase of 41 percent over the prior year period.

The high volume of catastrophe bonds coupled with 11 sidecar transactions totaling USD1.4bn, and collateralized reinsurance vehicles, allowed alternative capital to capture approximately a 20 percent market share of property catastrophe reinsurance volume during the period under review.

Several records were set during the 12 months, including the highest ever Q2 catastrophe bond issuance of USD4.5bn across 12 transactions. First half issuance also reached new heights with USD5.9bn of transactions brought to market – exceeding the prior year period by almost 50 percent (1H 2013: USD4.0bn).

As at June 30, 2014, total catastrophe bonds outstanding remained at a record high, with USD22.4bn of bonds on-risk – an increase of USD4.6bn from the previous year.

A total of 24 catastrophe bonds covering U.S. 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 utilized indemnity triggers covering regions such as Australia, Europe, Japan and North America.

An estimated USD5-6bn of new capital flowed into the sector during the 12 months, bringing total capital inflows to more than USD10bn 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, Chief Executive Officer 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. The average duration of catastrophe bonds has increased steadily over the past three semi-annual issuance periods, but the main driver in the market expansion is the large amount of new issuance driven by highly favourable pricing conditions."

On an annual basis, through June 30, 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 U.S. Hurricane and U.S. 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.

To view the full Insurance-Linked Securities 2014 annual update report, please follow the link below:

http://bit.ly/1sbIbg6

About Aon Benfield Securities
Aon Benfield Securities, Inc. and Aon Benfield Securities Limited (collectively, "Aon Benfield Securities") provide insurance and reinsurance clients with a full suite of insurance-linked securities products, including catastrophe bonds, contingent capital, collateralized reinsurance, industry loss warranties, sidecars and derivative products. As a recognized leader in this investment banking market, Aon Benfield Securities is helping clients to empower results by offering underwriting and placement of new issues, financial advisory services, as well as securities trading in the secondary market. Aon Benfield Securities' integration with Aon Benfield Inc's reinsurance operation expands its capability to provide analytics, modeling, rating agency, and other consultative services. Aon Benfield Inc., Aon Benfield Securities, Inc. and Aon Benfield Securities Limited are all wholly-owned subsidiaries of Aon plc. Securities advice, products and services are offered solely though Aon Benfield Securities, Inc. and/or Aon Benfield Securities Limited.

About Aon Benfield
Aon Benfield, a division of Aon plc, is the world's leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalised access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world's markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals' expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com.

About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon's global partnership with Manchester United.

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