NU Online News Service, July 24, 2:01 p.m.EDT

Second-quarter catastrophe-bond issuance increased in 2012 over2011, and a recent analysis describes the current market outlook as“very encouraging” as strong investor demand and available capitalpoint to increased issuance from sponsors going forward.

In 2012's second quarter, new non-life cat bond issuance volumetotaled $2.1 billion through seven transactions, up from $600million through four deals a year ago, according to Willis CapitalMarkets & Advisory (WCMA). The quarterly issuance volume is thesecond-highest going back to 2008, topped only by the 2010 secondquarter's issuance of $2.3 billion.

The quarter saw the largest single tranche cat bond everplaced, with Florida's last-resort property insurer, FloridaCitizens, sponsoring a two-year, $750 million transaction withEverglades Re in which Everglades Re provides occurrence coveragefor Florida hurricanes on an indemnity basis.

Louisiana's last-resort insurer, Louisiana Citizens, sponsoredits first cat bond in a transaction with Pelican Re: a three-yeardeal that provides $125 million of indemnity-triggered protectionagainst hurricane losses in Louisiana on an occurrencebasis.

WCMA says, “U.S. hurricane-exposed transactions dominated thequarter's issuance and continue to dominate the non-life market,with 73 percent of outstanding cat-bond limit exposed to U.S.hurricane risk of some form.”

During the second quarter, WCMA says, eight cat bonds maturedtotaling about $1.4 billion.

Looking forward, WCMA says, “We believe the current marketoutlook is very encouraging. Reduced risk spreads as a result ofstrong investor demand and available capital should stimulateincreased issuance from sponsors in the future.”

WCMA notes the first half of the year has seen $3.4 billion ofnon-life issuance, leading the firm to predict total issuance forthe year to fall in a range between $5.5 billion and $6 billion,barring a significant catastrophe event.

Rowan Douglas, CEO of Willis Global Analytics and head of theWillis Research Network, says in the report that scientificresearch and the use of data and analytics are changing thereinsurance market and encouraging more involvement from thecapital markets.

He notes the increased use of models, and how they are not justuseful in studying historic events but in developing understandingof the correlations between different weather regions. “This is notjust issues like El Nino/La Nina, but other correlations not sowell understood at present,” he says. “This, in turn, helps theindustry to control accumulations of risk and maintain betterdiversification.”

On how cat modeling encourages more involvement from the capitalmarkets, Douglas says, “It seems that there is some comfort in thecatastrophe modeling currently available and that this has beeninstrumental in getting capital-markets investors involved in themarket already.”

He suggests that as capital-markets investors increase theirinvolvement in the catastrophe-risk sector, scientific-researchinvestment will increase.