Catastrophe bond issues headed to 2007 highs-Aon

FRANKFURT, Aug 23 (BestGrowthStock) – New issues of insurance
catastrophe bonds should rapidly rebound to pre-financial crisis
highs as securities markets stabilise, insurance broker Aon
Benfield (AON.N: ) said on Monday.

Investors are showing sustained interest in so-called cat
bonds, which enable insurance companies to transfer big risks
such as for hurricane or earthquake damage to financial market
investors, while their prices have also remained attractive for
sponsors of the bonds, the broker said.

Aon Benfield, the world’s biggest insurance brokerage, said
in its review of the insurance-linked (ILS) market over the last
year that it expected a rise in the number of ILS transactions
and deal sizes in the coming months.

“We expect catastrophe bond issuance to increase and quickly
approach the peak levels witnessed in 2007,” it said.

Cat bond issuance totalled just over $7 billion in the year
to June 30, 2007, and was at nearly $6 billion in 2008 before
falling sharply as the financial crisis struck.

The market for cat bonds has since improved as investors’
memories faded of the financial crisis, soothed by double-digit
returns for many ILS securities. [ID:nLDE67H17K]

Those surging returns are however unlikely to be sustainable
in the months ahead, Aon Benfield warned on Monday.

“Because the extraordinary conditions witnessed during the
recent market recovery are unlikely to be repeated, we expect
annual returns will ease toward historical averages over the
next several quarters,” it said.

Aon Benfield joined the world’s two biggest reinsurers,
Munich Re (MUVGn.DE: ) and Swiss Re (RUKN.VX: ), in predicting
investors would need to diversify their portfolios after
stocking up on U.S. hurricane bonds earlier this year.
[ID:nLDE66R0BU]

If investors are flexible on prices, it may encourage
sponsors to choose the ILS deals over traditional reinsurance,
where costs are lower, Aon Benfield said.

“We do expect that investors will be willing to invest in
non-U.S. hurricane deals at lower spreads to encourage issuance
in these perils to balance out the large amount of U.S.
hurricane-exposed bonds in their portfolios,” said Paul Schultz,
president of Aon Benfield Securities, which sets up cat bonds
for insurance and reinsurance companies.

There have been 20 new catastrophe bond issues totalling
$4.6 billion in the 12 months to June 30, up from 11 issues
totalling $1.7 billion in the previous period, Aon Benfield
said.

Half of the $4.6 billion was issued in the second quarter of
2010 alone and was mostly related to the transfer of U.S.
hurricane risk, the broker said.

New insurance capital rules in Europe — called Solvency II
and due to come into force in 2013 — will help boost issuance
of insurance-linked securities for non-U.S. risks, the market
still faced some hurdles, Aon Benfield said.

“While we expect that the market will continue to grow this
year and beyond, the full market potential continues to be
constrained by an extremely competitive traditional reinsurance
market,” the broker said.
(Reporting by Jonathan Gould; Editing by Karen Foster)

Catastrophe bond issues headed to 2007 highs-Aon