December 2012/1

Longevity swap volumes in 2012 were touted to exceed or at least match the $7bn record set in 2011, but one year on just a handful of deals have closed, with the market dominated by reinsurers.

The industry loss warranty (ILW) market had a year of two halves in 2012, starting with strong trading amid a dislocated retro renewal at 1 January 2012, before volumes and prices fell dramatically at mid-year as indemnity capacity rebounded.

Collateralised capacity made its mark in this year's property catastrophe renewals as market commentators remarked on the success of convergence.

Throughout 2012 reinsurers have rushed to pick up new convergence talent and build out their third party funds management arms in response to growing investor interest in the sector.

ILS specialist hedge funds tracked on the Eurekahedge ILS Advisers Index delivered average returns of 5 percent for 2012 up to the end of November, well ahead of the -0.12 percent annual loss made in 2011.

This time last year the specialist ILS fund market was abuzz with talk of potential consolidation as a question mark hung over the future of two of the largest asset managers in the sector.

Figures from Swiss Re show that dedicated investors bought a 62 percent share of ILS issuance in 2012, as the market continued to shift from an opportunistic to more long-term investor base.

The catastrophe bond market pulled ahead this year to grow outstanding volumes for the first time since the 2008/09 financial crisis, as annual issuance stayed on track to hit the $6bn volume forecast and easily surpass the 2011 total of $4.8bn.

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The Bermudian (re)insurer Endurance's acquisition of the assets of Galileo Weather Risk Management demonstrates the weather market's maturity, according to Galileo co-founder Martin Malinow.

A new index fund and the third listed ILS fund are among the upcoming launches that are set to add more investor choice to the market.

With a $2bn-$3bn marine industry loss estimate now a significant component of the overall Sandy burden, the convergence market is looking for possible sources of loss leakage.