Insurance-Linked Securities Report 2008 - Aon
Insurance-Linked Securities Report 2008 - Aon
Insurance-Linked Securities Report 2008 - Aon
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New Insight into Catastrophe Bond<br />
Market Returns<br />
<strong>Aon</strong> Capital Markets launches <strong>Aon</strong> Cat Bond Indices<br />
Whether the result of recent economic conditions, rising public interest in the capital<br />
markets or the growing volume of assets under management globally, investment<br />
returns face more scrutiny in all sectors of the capital markets. The ILS industry’s<br />
concentrated but increasingly active investor base is no exception to this general<br />
observation. To meet the needs of ILS investors and observers, <strong>Aon</strong> Capital Markets<br />
is pleased to introduce the <strong>Aon</strong> Cat Bond Indices, which provides valuable ILS<br />
performance data.<br />
The Indices represent, on a sector-by-sector basis, what an investor would have<br />
achieved by allocating a weighted amount of capital to each cat bond available in<br />
the market. We use the indicative bids published monthly by <strong>Aon</strong> Capital Markets<br />
to define the market and form the basis for the total return calculations. Indicative<br />
bids are derived through <strong>Aon</strong> Capital Markets’ trading experience, combined with<br />
the results of a proprietary model that presents market dynamics and seasonality<br />
on a category-by-category basis. <strong>Aon</strong> Cat Bond Indices’ sectors follow conventional<br />
market segments: Asia Pacific, Europe, Multi-peril, North American Earthquake, and<br />
North American Wind. We also segment the market between investment-grade and<br />
non-investment-grade given the disparity of returns for each of these markets.<br />
<strong>Aon</strong> Capital Markets calculates each group of indices by adding the following<br />
components:<br />
• Mark-to-market change for each cat bond<br />
• Coupon returns for each cat bond<br />
• LIBOR returns for the period<br />
<strong>Aon</strong> Capital Markets<br />
The Indices present the performance of all outstanding catastrophe bonds on a<br />
mark-to-market basis. Each security’s contribution to the total return for the sector<br />
is weighted by issue size and number of days on-risk. For example, an ILS that has<br />
been on-risk only half the quarter will not contribute the same weighted return as<br />
an identical issue that was on-risk for the entire quarter.<br />
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