ILS sector showing resilience in tough times: Aon Benfield

The insurance-linked securities (ILS) sector outperformed most asset-backed securities and provided positive returns for investors over the past year despite an extraordinarily challenging environment, according to ILS Review 2009 – Adapting to an Evolving Market, an Aon Benfield review of the ILS market.
ILS products provided a total investment return of 3.89% for the year ending Jun. 30, 2009, down from 10.12% the previous year, according to Aon Benfield’s proprietary cat bond indices benchmarking service.
The results are primarily attributable to mark-to-market losses across all perils, the company noted.
Mark-to-market principal losses were more than offset by interest income, the company added.
“In the face of extraordinary economic events over the past year, the ILS market has shown its resilience,” Paul Schultz, president of Aon Benfield Securities, said in the release. “After volumes stalled in the final quarter of 2008, they rebounded in 2009 and the confidence of both investors and sponsors has been restored.
“The market has demonstrated its ability to evolve and adapt, and ILS solutions will continue to play an important role in re/insurers’ risk transfer strategies.”
The ILS review reveals that investor demand remains high for 2009 vintage cat bonds containing improved collateral structures, with investors bidding over par value for certain bonds in June, the release notes.