NU Online News Service, Jan. 17, 9:34 a.m. EST

Last year was an active one for insurance linked securities as placements for 2010 rose 28 percent over the previous year, according to a report by Aon Benfield Securities.

The investment banking and capital advisory subsidiary of Chicago-based insurance broker Aon Corp. said in its “Insurance Linked Securities, Fourth Quarter Update, 2010” report, examining the key trends in the sector during the fourth quarter of last year.

For the year, there were 23 catastrophe bond transactions totaling $4.8 billion in notional issuance volume. The number exceeds the previous year's 18 deals and issuance volume of $3.4 billion.

The 2010 fourth quarter saw 10 bonds for a total value of $2 billion, compared to $1.6 billion in the 2009 fourth quarter.

Aon Benfield said that while the 2010 first half was characterized by the issuance of bonds covering U.S. hurricane risk, the fourth quarter witnessed a more diverse range of securities that also provided sponsors with protection against European windstorm and Japanese earthquake perils.

According to the report, European windstorm catastrophe bonds were well supported during the year, with six transactions totaling €525 million (more than $701 million at the current exchange rate) coming to market.

In a statement, Paul Schultz, president of Aon Benfield Securities, said, “The fourth quarter of 2010 put finishing touches on a year that witnessed a resurgence in ILS [insurance linked securities], and we expect this trend to continue into 2011. As the broader reinsurance markets continue to experience price softening, ILS products will remain highly competitive this year, offering sponsors a multiyear, fully collateralized, fixed price risk transfer option that has its own dedicated and experienced investor community.”

Aon Benfield Securities forecasts strong investor interest for ILS products in 2011, with several dedicated ILS funds having already stated their increased commitment to the sector.

Meanwhile, the report noted that the Dodd-Frank Act of July 2010 on financial reform has brought additional compliance procedures to the catastrophe bond ratings process. However, the law is not expected to impair future ILS market growth, Aon Benfield said.

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