Insurance-linked securities outperformed investment returns from the US S&P 500 Index in the year to June 30, according to an Aon Securities report.

The report – titled Alternative Markets Find Growth Through Innovation – says the Aon All Bond Index provided higher returns than the US stock benchmark index and most comparable fixed-income benchmarks.

The Aon All Bond and BB-rated bond indices returned 6.84% and 5.34% respectively, while US hurricane and earthquake bond indices returned 7.73% and 4.85%.

That compares with 2.69% for the S&P 500 Index.

“We saw a continued increase in alternative capital in the reinsurance sector,” Aon Securities CEO Paul Schultz said. “However, continuing a recent trend, the capital is being increasingly deployed in the collateralised reinsurance space rather than in the form of catastrophe bonds.”

Lower bond issuance volume was driven by factors including competition from traditional markets and longer coverage periods, with some cedents renewing capacity less frequently and some increasing risk retentions.

Aon Securities, the investment banking division of global reinsurance intermediary and capital adviser Aon Benfield, says 24 catastrophe bond transactions closed during the year.

The total limit of $US2.5 billion ($3.2 billion) was down on the previous year’s $US7 billion ($8.9 billion).

US exposures continued to dominate, but three bonds closed covering property risks in Europe and three insurers sought coverage for Japan risks.

One extreme mortality bond was brought to market covering Australia, Canada and UK risks.

In mergers and acquisitions (M&A), transaction volumes were relatively similar to the previous year, but the average deal size fell as many of the most likely acquirers focused on bedding down previous transactions.

“M&A conditions still remain favourable for deals as long-term trends towards consolidation in the insurance and reinsurance industries continue,” the report said.