Carriers showed an increased interest in insurance-linkedsecurities in 2012, producing a record year in cumulative-bondactivity, says Aon Benfield.

“Fourth quarter 2012 ILS [insurance linked securities] issuancevolumes were strong, adding to the consistently impressivequarterly performances for the year as a whole,” says Paul Schultz,CEO of Aon Benfield Securities.

For 2012, catastrophe-bond issuance increased 35 percent from2011, and was at its highest level since 2007, the report says.

The year 2012 closed with $6.25 billion in catastrophe-bondissues compared to $4.6 billion the previous year. The bonds wereprimarily driven by U.S. risks as “sponsors looked to securecapacity ahead of hurricane season.”

For the past four years, the fourth quarter proved the mostactive period for catastrophe bond placements. In 2012 there was$1.89 billion placed compared to $1.99 billion in 2011. Of the pastfour years, 2010 had the most active fourth quarter with $2.39billion in placement.

Total bonds outstanding in 2012 were at their highest levelsince 2007, producing a new record, with $16.54 billion, comparedto $16.05 billion in 2007. From the previous year, total bondsoutstanding rose 19 percent, from close to $14 billion in 2011.

Aon Benfield says there was a number of repeat sponsors,including SCOR Global P&C SE and United Services AutomobileAssociation.

Compass Re Ltd. Series 2012-1, from National Union FireInsurance Co. of Pittsburgh, an affiliate of American InternationalGroup, secured the single largest transaction in the quarter at$400 million. The insurers total catastrophe bond capacity standsat $1.85 billion.

The U.S. hurricane bond index posted strong returns of 10.5percent in 2012, says the report, beating 2011's 6.1 percent. U.S.Earthquake Bond index was declared “stable” posting a return of 5percent compared to 5.4 percent for the prior year.

“In the absence of severe catastrophic events, we expect 2013 tobe another positive year of returns for ILS market,” says AonBenfield.

In an e-mail, Schultz says the forecast is for a “healthy firsthalf 2013 issuance pipeline, and a strong year in general, withbetween [$6 billion and $7 billion] in ILS issuance. Should weachieve results at the high end of the forecast we would surpassresults in 2012.”

Superstorm Sandy did have an impact on bonds, the report says.Besides hitting the U.S. on Oct. 29, it caused $2.5 billion ineconomic damage to the Caribbean and $108 million in insurancelosses in Canada.

Between Oct. 19 and Nov. 16, U.S. hurricane bonds decreased 4.1percent while U.S. multi-peril bonds decreased 7.9 percent.

Despite the losses, the reinsurance broker says by the end ofthe year, “no bonds had been impaired due to Sandy.”

Update: Additional comments from Schultz on Jan. 16 at 9:58a.m. EST.