Aon Benfield Securities, the investment banking division of the global reinsurance organization, has launched the latest edition of its annual report on insurance-linked securities. Insurance-linked securities are financial instruments whose value is determined by insurance loss events. In its latest report, titled “Evolving Strength 2012,” Aon highlights a number of key trends it has observed over the past year. These trends range from the frequency and severity of natural disasters to the issuance of catastrophe bonds.
Catastrophe bond issuance on the rise, as well as profits
The report shows that catastrophe bond issuance rose to $6.43 billion over the twelve months leading up to June 30, 2012. This is a $2 billion increase over what catastrophe bond issuance had been in the same period of 2011. The report notes that insurance-linked securities reached a record issuance in the first quarter of 2012, coming in at $1.49 billion, up from last year’s $1.02 billion. The growth trend is expected to continue into the coming years.
Sector showing promising results despite shifting insurance landscape
According to the report, a total of 30 insurance-linked securities transactions closed during the year. Much of these transactions occurred in the life and health insurance sectors. Both sectors have been seeing significant changes over the past year, especially in the U.S., where new laws are changing the way health insurance companies do business with consumers and companies. Despite the legislative and regulatory shifts affecting the insurance industry, insurers around the world, Aon Benfield included, are reporting strong returns and profits.
Aon Benfield notes that the insurance-linked securities sector has demonstrated is ability to endure global financial crises. This may bode well for the global economy, as this particular sector has profound implication for the financial structure of multiple countries. The fact that this sector is showing such promising performance could mean that future financial crises may be averted or more adequately mitigated.