Aon Benfield Securities reported that the catastrophe bond market reached a record $20.3 billion last year.

The Insurance Linked Securities Fourth Quarter 2013 Update, released this week by the investment banking division of the global reinsurance intermediary and capital adviser, stated: “New catastrophe bond issuance for the calendar year 2013 finished strongly at $7.5 billion.”

It noted that 16 transactions had closed during the second half of 2013. “Market pricing conditions for insurance-linked securities remained in line with the historical lows seen in the first half of 2013, as strong demand for cat bonds continued among sponsors and investors.”

Aon Benfield also noted that during the second half of 2013, several new sponsors entered the market including the Metropolitan Transportation Agency, Axis Specialty, American Modern Insurance Group, Inc, QBE Insurance Group and Achmea Reinsurance Company NV.

The report focused on Japanese risk, and Zenkyoren’s sponsoring of its first indemnity transaction. In an interview included in the report about Japanese risk with the Zenkyoren reinsurance office’s general manager, problems with the parametric index, the cat bond trigger, were highlighted.

Yoichi Azuma said: “The Muteki cat bond was designed so as to rely on peak ground acceleration observed at Kyoshin Network (K-net) stations to determine whether a loss had been triggered. As the damage from the tsunami was especially significant for the Great East Japanese earthquake, we experienced issues where the observed parameters could not be reported soon after the event because some observation stations were damaged or swept away by the tsunami.

“This experience gave us a lesson and we are now fully aware of the importance of carefully designing a back-up plan so that a parametric index cat bond behaves as expected at the time of loss.”

The report also noted that QBE is providing indemnity coverage for US earthquakes, Australian cyclones and Australian earthquakes in a first cat bond transaction for the insurer.

It continued: “Also in the fourth quarter, Argo Re returned to the cat bond market with its third issuance, Loma Reinsurance (Bermuda) Ltd. This transaction provides the sponsor with US multi-peril coverage using a combination on industry index and indemnity triggers.”