The issuance of catastrophe bonds surged to the highest level since 1998 in the third quarter amid increasing demand from institutional investors searching for yield, Willis Capital Markets & Advisory said.
French insurer Groupama SA, Metropolitan Transit Authority of New York and Swiss Re Ltd., the world’s second-biggest reinsurer, were among seven institutions to issue bonds worth $1.4 billion in the period, financing protection against earthquakes, tornadoes and windstorms, Willis said in a report Wednesday. That compares with about $500 million issued in the year-earlier period.
“If fourth-quarter issuance remains at a similar level it will be a record year,” surpassing the 2007 record, said Bill Dubinsky, head of ILS at WCMA, a unit of broker Willis Group Holdings Plc. Current outstanding capacity was at an all-time high of $17.3 billion, he said in a statement.
Guy Carpenter, the reinsurance brokerage of Marsh & McLennan Cos., estimates that a record $10 billion of institutional money has flowed into insurance-linked investments in the 18 months through June and for the first time is directly influencing pricing of some catastrophe risk coverage.
In a catastrophe bond, insurers pay buyers some of the premiums collected for protection against damage from natural disasters. In exchange for above-market yields, investors assume the risk of a disaster during the life of their bonds, with their principal used to cover damage caused if the catastrophe is severe enough. The first catastrophe bonds were issued after Hurricane Andrew in 1992.
(Editor: Jon Menon)