The insurance-linked securities (ILS) market enjoyed a "banner year" in 2012, and even Superstorm Sandy "could not shake investors' demand for new bonds," according to a Swiss Re Capital Markets report.
The year saw $6.3 billion worth of bonds brought to the market, the second-largest historical year of issuance, behind only 2007. "Investors continued to flock to the largely uncorrelated and attractive risk-adjusted returns offered by catastrophes bonds, while sponsors capitalized on the opportunity to cede risk at lower overall costs by employing ILS structures," the report says.
Swiss Re says catastrophe events in the year tested the market, but even after Sandy, successful placements occurred, and the report adds that both sponsors and investors are growing more comfortable with the product. "The market has developed beyond a niche product for insurers, and has grown into a fundamental part of (re)insurance companies' risk-management programs," says Swiss Re.
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