Insurance-Linked Securities Report 2008 - Aon

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Insurance-Linked Securities 2008 6 $ MM New issuance declined by $1.2 billion—about 17 percent—in the 12 months ending June 30, 2008. Greater reinsurance capacity and lower costs related to a calm catastrophe season contributed to the reduction, but the decrease says less about conditions in 2008 than it does about the extraordinary activity witnessed in 2007. In the 12-month period ending June 30, 2007, the market surged 124 percent to over $7 billion of issuance. Indeed, it would have surprised industry participants and observers if 2008 activity met or exceeded 2007’s record results. CATASTROPHE BOND ISSUANCE BY HALF-YEAR 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 521 1H 05 977 2H 05 2,147 1H 06 2,547 2H 06 4,455 1H 07 3,405 2H 07 2,410 1H 08 Issuance trends can also be analyzed by reviewing volumes on a six-month basis. Catastrophe bonds covering U.S. hurricanes are typically brought to market in the first half of the calendar year, and the majority of 2007 issues came during this period. CATASTROPHE BOND ISSUANCE BY TRANCHE / DEAL / SPONSOR (Years ending June 30) 50 45 40 35 30 25 20 15 10 5 0 2002 2003 2004 2005 Tranches Issued Deals Issued 2006 2007 2008 First Time Sponsors 12 10 8 6 4 2 0 CAT Bonds
While transaction volumes have fallen, the market remains strong. The total number of tranches issued increased in the year ending June 30, 2008, totaling 49 versus 47 in 2007. Interestingly, the number of deals declined in 2008 from 32 to 22, indicating that transactions are being subdivided to reach more classes of investors and more investors overall. CATASTROPHE BOND ISSUANCE BY YEAR AND PERIL (Years ending June 30) Notional Limit Issued by Peril 8000 7000 6000 5000 4000 3000 2000 1000 0 420 441 301 2001 2002 2003 All told, there has been more than $15 billion in new risk transfer in the last three years. It is also interesting to note that the $5.8 billion volume in the 12 months ending June 30, 2008 was nearly double that of the same period ending two years earlier. The rapid growth in this market over the past two years is a clear indication that we can expect greater transaction volume than the $1.1 billion issued in 2005, regardless of the measurement method or date used. Hurricane North American Quake Euro Wind Japan Quake Asia Paci�c Other 476 2004 Hurricane North American Quake Euro Wind Japan Quake Asia Pacific Other The market continues to focus on U.S. earthquake and wind risks, yet European wind and Japanese earthquake transactions maintain a steady presence. Indeed, the on-risk volumes for European wind and Japanese earthquake in 2008 exceed those of just a few years ago. It is also encouraging to note the increase in bond issuance covering other perils in 2008, including tornado, hail, wildfire, and winter storm. As an aside, market participants periodically debate the relative merits of singleperil and multi-peril bonds. Comparing 2007 and 2008 to the years immediately preceding Hurricane Katrina, we find the percentage splits are the same. As such, the issue of single- or multi-peril has less relevance in 2008 than, for example, the rise of indemnity structures. 646 2005 1,038 2006 2,328 2007 Aon Capital Markets 1,669 2008 7
Page 1 and 2: Insurance-Linked Securities 2008 In
Page 3 and 4: Foreword I am pleased to present th
Page 5: $ MM Aon Capital Markets Review of
Page 9 and 10: CATASTROPHE BOND ISSUANCE BY LOSS T
Page 11 and 12: New Insight into Catastrophe Bond M
Page 13 and 14: AON CAT BOND INDICES BY SECTOR (Yea
Page 15 and 16: Indemnity Triggers Reach New Height
Page 17 and 18: • Longer recovery. Since indemnit
Page 19 and 20: The Buy Side A review of the ILS in
Page 21 and 22: The ILS Market: Beyond Cat Bonds As
Page 23 and 24: Just-in-Case Capital As a prearrang
Page 25 and 26: Aon Capital Markets • Repurchase
Page 27 and 28: Continued Innovation Options and fu
Page 29 and 30: Aon Capital Markets CME Group devel
Page 31 and 32: Aon Capital Markets Despite some gr
Page 33 and 34: Appendix I Catastrophe bond issuanc
Page 35 and 36: CATASTROPHE BOND ISSUANCE BY YEAR (
Page 37 and 38: CATASTROPHE BOND ISSUANCE BY TRIGGE
Page 39 and 40: Appendix II ILS market transaction
Page 41 and 42: SUMMARY OF CATASTROPHE BONDS - 1997
Page 49 and 50: SUMMARY OF SIDECAR ISSUANCE Aon Cap
Page 52: 200 E. Randolph Street, Chicago, Il

Insurance-Linked Securities Report 2008 - Aon

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