Catastrophe bond sales this year totaled $4.4 billion with theannouncement today that Munich Re has issued a $190 millionCalifornia earthquake bond, an investment bank reported.

Bank of America Equity Research said the total is up from about$2 billion in cat bonds issued in 2005, citing data from thereinsurance broker Benfield Group.

It said the Munich Re-sponsored cat bond–issued by CaymanIslands-based Lakeside Re Ltd.–will cover losses to Zurich AmericanInsurance Company in the event of a California earthquake.

Bank of America analysts said that despite the cat bond salelevels, they believe that reinsurance buyers continue to prefertraditional reinsurance with triggers pegged to company-specificlosses over alternative forms of reinsurance.

Alternative reinsurance, they said, frequently are pegged toindustry losses and carry significant basis risk for buyers. Thebank analysts said they believe the surge in issuance ofalternative forms of reinsurance is more like filling a gap left byreinsurers than competing directly with them.

The sharp increase in reinsurance capacity from catastrophebonds and other nontraditional forms of reinsurance, such assidecars and industry loss warranties, “is a response to what webelieve is an approximate $50 billion shortfall in capacity towrite peak-zone catastrophe insurance,” the equity analystssaid.

The shortfall, according to Bank of America's analysis, is theresult of:

o The 2005 hurricane losses.

o Increases to modeled loss forecasts.

o Stiffened rating agency capital requirements.

o Unwillingness on the part of property insurers and reinsurersto expose a significant part of their capital bases to catastrophiclosses in any one zone.

A shortfall in capacity to write property andproperty-catastrophe insurance, and the steep premium rateincreases that have resulted, most directly benefits thosecompanies for which property insurance makes up a significantportion of their books of business, Bank of America said.

The firm's analysts' coverage of companies includes AxisCapital, Aspen Insurance Holdings and Everest Re.