NU Online News Service, July 14, 2:32 p.m.EDT

A quiet second-quarter catastrophe-bond market reflects thedesire among investors to put their money into places other thanU.S. hurricane risks, a report from Willis Group Holdings says.

In a report titled “The Market Digests a New Hurricane Model Amid LightIssuance Volume,” Willis Capital Markets & Advisory (WCMA),a part of insurance broker Willis, notes that only four newcatastrophe bonds were issued during the second quarter, amountingto close to $600 million. This is in contrast to the prior year'stransactions that amounted to more than $2 billion.

With 71 percent of outstanding bonds dedicated to U.S. windevents, investors are seeking to diversify their portfolios.

Bill Dubinsky, head of insurance-linked securities at WCMA, saysin a statement, “Investors have cash to invest and remain keen onrisk in cat-bond form, but are somewhat starved of new issuance,particularly non-U.S. wind-exposed deals.”

He adds, “The cat-bond market should see an uptick in deals inthe second half of 2011 as investors get more certainty around howthe new RMS hurricane model will affect pricing. It will alsobenefit from the increase in ex-U.S. catastrophe-reinsurancepricing.”

In the report, James Kent, president of Willis Re North America,says that the situation would be helped if the markets offered“some capacity at higher expected loss and smaller limit sizes” inthe $5 million to $25 million range. He understands thattransaction expenses are “an impediment” to these programsdeveloping at present, but hopes some structure could be develop todeal with this issue.

He notes too that small catastrophe bonds of this sort wouldhelp many smaller regional carriers.

As far as covered perils, Kent says there could be more done inthe way of tornado and hail risk in the United States,“particularly if sold on an aggregate basis, and global floodrisks.”

He says terrorism would also be a good program, but understandsthere are modeling issues associated with it that make it difficultto put into a catastrophe bond.