NU Online News Service, Aug. 23, 1:09 p.m. EDT

After a lull in investing in insurance-linked securities in2009, the market showed a sharp uptick in investment interest in2010.

In its third annual report, Aon Benfield Securities, asubsidiary of Chicago-based insurance broker Aon Corp., said over a12-month period ending June 30 of this year, insurance-linkedsecurities achieved a 170 percent increase, rising from $1.7billion and 11 transactions during the 12-month period in 2009 to$4.6 billion and 20 transactions this year.

In its "ILSReview 2010--Market Momentum" report, Aon Benfield said theinvestments were exceeded only by the years 2007, with $7 billion,and 2008, with $5.8 billion in insurance-linked securitiesissued.

The report said that as of June 30, there was a total of $12.1billion in catastrophe bonds outstanding, up from $11.4 billion ayear earlier. Since 1997, the insurance-linked securities markethas seen a total of $30.9 billion of cumulative catastrophe bondsissued.

"Over the past year, the insurance-linked securities market hasonce again demonstrated its importance as a source of risk-transfercapacity," said Paul Schultz, president of Aon Benfield Securities,in a statement. "The market has grown and evolved in response to achanging global economic environment, maintaining its relevance toboth sponsors and investors. Our analysis elaborates on thesemarket characteristics and offers a positive outlook for thefuture."

Aon Benfield said according to its insurance-linked securitiesindices--a benchmarking tool it launched earlier thismonth--insurance-linked securities products provided a totalinvestment return of 12.85 percent for the year ending June 30,2010. This was an increase of 2.94 percent from the previous year.These results are primarily attributable to mark-to-market gainsacross all perils, the firm said.

The report said that despite some major catastrophes so far thisyear--specifically the 7.0 magnitude earthquake in Haiti, the 8.8magnitude earthquake in Chile and the $1 billion in insured lossesfrom February's Windstorm Xynthia across Western Europe--thedisasters are "unlikely to significantly alter [insurance-linkedsecurities] trends."

The 56-page report stated "further momentum" in theinsurance-linked securities space is expected as capital continuesto flow in and the pricing environment remains attractive.