Catastrophe bond issues set for high

NEW issues of insurance catastrophe bonds should rapidly rebound to pre-financial crisis highs as securities markets stabilise, insurance broker Aon Benfield said yesterday.

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 $7bn (£4.5bn) in the year to 30 June, 2007, and was at nearly $6bn 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.

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