The report, Insurance-Linked Securities Q1 2016 Update, reveals that total catastrophe bond issuance for the period reached USD2.22bn across 10 transactions, representing a new Q1 record for the ILS sector and an increase of more than 30% on the previous record set in Q1 2015.
Further ILS records were established when outstanding catastrophe bonds stood at USD25.0bn as the quarter came to a close on March 31, 2016.
Bonds covering U.S. named storm and earthquake dominated the market in Q1, as did, to a lesser extent, Japan typhoon.
Additional placed perils included U.S. severe thunderstorm, winter storm, wildfire, volcanic eruption and meteorite impact; the latter four, typically viewed as add-ons to multi-peril coverage, are gaining prevalence in ILS transactions. Canada earthquake and U.S. medical benefits ratio coverage were also part of the Q1 2016 issuance.
The report reveals that secondary markets activity increased during the quarter, with trade volume rising more than 25% compared to Q4 2015. In total, 311 trades totaling USD307.75 million were reported in Q1 according to FINRA’s Trade Reporting and Compliance Engine (TRACE).
Paul Schultz, Chief Executive Officer of Aon Securities, said: “With market volume typically concentrated around the important reinsurance renewals periods of Q2 and Q4, the strong start to 2016 bodes well for the year ahead, especially in light of the prevailing competitive (re)insurance landscape, which contributed to the more moderate issuance volumes of Q4 2015.”
During the first quarter of 2016, all Aon ILS Indices posted gains; the All Bond and BB-rated Bond indices achieved the greatest growth with returns of 1.81 percent and 1.43 percent, respectively, while the U.S. Hurricane and U.S. Earthquake Bond indices followed with returns of 0.72 percent and 1.09 percent, respectively.
The Aon ILS Indices performed with mixed results relative to benchmarks, but managed to outperform the S&P 500 and the ABS 3-5 Year Fixed Rate index. The annual returns for the year ended March 31, 2016 of all Aon ILS Indices also outperformed the prior year’s annual returns, for the first time since Q4 2013.
The 10-year average annual return of the Aon All Bond index, 8.65 percent, further produced superior returns relative to the other benchmarks. This demonstrates the value a diversified book of pure insurance risks can bring to long term investors’ portfolios.
To view the full Insurance-Linked Securities Q1 2016 Update report, please follow the link here
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