There’s more proof that investors are continuing to deploy capital into the insurance-linked securities (ILS) sector.A study released by Aon Benfield Securities, the investment banking division of global reinsurer Aon Benfield, shows the volume of catastrophe bonds that were issued during the second quarter of this year hit $2.1 billion.Retaining strong momentum from a record-breaking first quarter, which saw $1.5 billion worth of deals brought to market, a total of seven transactions closed during the second quarter. Both seasoned investors and newer entrants to the ILS space continued to receive strong capital inflows.That takes the total issuance for the first half of 2012 to $3.6 billion, which was just short of the all-time high of $3.8 billion level reached during the same period in 2007. It’s also in-line with the majority of industry predictions that suggest 2012 should see between $5 billion and $7 billion of deal-flow.“The Q2 ILS issuance figures were excellent, and brought the total issuance for the first half of 2012 very close to record levels,” said Paul Schultz, chief executive officer of Aon Benfield Securities. “The pipeline for the remainder of 2012 remains strong, and we are pleased to see healthy levels of capital inflows from both seasoned investors and newer entrants to the ILS sector.”After a negative first quarter, Aon Benfield’s ILS Indices, which track the returns of the outstanding ILS market, rebounded in the second quarter to post mark-to-market gains.Aon’s All Bond and BB-Rated Bond Indices increased by 2.74 percent and 2.49 percent respectively, while the US Hurricane Bond and US Earthquake Bond Indices increased by 1.94 percent and 2.32 percent. Industry watchers say that should help to stimulate further investor interest in the sector as there aren’t many investments that could offer a quarterly return above 2.5 percent.Aon Benfield expects more deals in the pipeline and believes we will see around $6 billion of issuance this year.The “Insurance-Linked Securities Second Quarter Update 2012” also reveals that ILS, often marketed for their “non-correlation” to credit and equity markets, would not be spared losses following a possible break-up of the Eurozone.“Some market commentators believe that a potential Greek exit, severely unsettling for the whole area, could be a forerunner to a partial or full break-up of the Eurozone,” the report says. “In this instance, the catastrophe bond market will no longer be immune to the effects of a break-up.”ILS structures with exposure to the EU could be subject to an “early redemption event” that would allow cedents to terminate the transaction if the euro ceases to exist as a currency. The report did not say however, how an early redemption would impact investors.The full report is available at: http://thoughtleadership.aonbenfield.com/Documents/201207_ab_securities_ils_quarterly_update_q22012.pdf