NU Online News Service, May 1, 12:22 p.m. EDT

The first quarter of 2012 hit a record in the catastrophe-bond market as property and casualty insurance sponsors introduced eight new tranches, increasing the issuance of securities by 32 percent over the same period last year.

In its quarterly report, “Strong Start to 2012 Sees Record First Quarter Issuance,” insurance-broker Willis Capital Markets & Advisory says the market had more than $1.3 billion of non-life capacity compared to more than $1 billion for the same period last year.

The tranches were overwhelmingly dedicated to U.S.-hurricane exposure, closely followed by earthquake exposure. Typically, hurricane and earthquake were combined under the same security.

“The market's strong momentum from late 2011 has continued into the first quarter of 2012,” says Bill Dubinsky, head of insurance linked securities at Willis Capital Markets & Advisory, in a statement. “Although spread levels have widened somewhat, we believe the medium term outlook for the market remains encouraging. Growth in insured exposures should continue to drive capital markets' involvement in the catastrophe-risk sector.”

The largest of the eight tranches were $300 million sponsored by Zenkyoren; $275 million for U.S. hurricane and earthquake sponsored by Liberty Mutual; and a $200 million tranche sponsored by North Carolina Farm Bureau Mutual Insurance Co. and COUNTRY Mutual Insurance Co. that was brought by Swiss Re to cover U.S. hurricane, earthquake and severe weather.

In the report, Frank Majors, managing principal and co-founder of Nephila, a reinsurance-risk-investment manager, comments on the ILS market, noting that “…the market is just starting to mature, though the maturation process could take many forms and we do not think extrapolating to assume that the future looks like a bigger version of the present will provide a very accurate forecast.”

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