The catastrophe bond market is thriving, and sponsors arefinding continued strong demand for a diversifying set of risks,according to Fitch Ratings.

A major factor in this ability to shape the bonds is thatinvestors are finding capital appreciation on their investments, aFitch report says.

“Bond demand is underscored by new issues that have beenconsistently oversubscribed, with many experiencing 10% to 20%growth above their initial offering size,” the report says.

On the flip side, that could mean trouble for investors—and themarket—down the road. The report says most of the focus of thecatastrophe bond market remains on model-driven property risks, inparticular U.S. peak zone risk.

“Investors remain significantly exposed to U.S. hurricaneexposure, with approximately 72% of the outstanding catastrophebond market currently exposed to U.S. wind damage, compared withonly 45% in 2003,” the report notes.

The report says there has been approximately $7.1 billion ofglobal cat bond issuance in 2013, just short of the all-time recordset in 2007 of $7.6 billion. In 2013, the market also experienced a22% increase in issuance over the prior year.

The report adds that in 2013, $2.8 billion of new catastrophebond issuance included triggers for events occurring in marketsoutside the U.S., representing 40.1% of all issuance during theyear, which was a slight increase over the past few years.

Thirty different sponsors of cat bonds came to market during theyear, including 11 that were first-time sponsors.

The array of sponsors in 2013 extended beyond the traditional(re-)insurers that have been the mainstays of the marketplace andincluded non-traditional sponsors such as First MutualTransportation Assurance Co. (MetroCat Re), New JerseyManufacturers Insurance Group (Sullivan Re) andstate-/government-sponsored entities such as Citizens PropertyInsurance (Everglades Re) and the Turkish Catastrophe InsurancePool (Bosphorus 1 Re).

Long-time sponsors, American International Group, NationwideMutual and USAA, each went to market as sponsors twice in 2013, thereport said.

Fitch says it expects investor demand to remain strong in 2014.The report projects demand will be particularly high forgeographically diversifying perils.

“Current market conditions remain likely to drive furtherissuance of catastrophe bonds in the near term if insurers andreinsurers believe they can produce a cost-effective alternative tosupplement their reinsurance program,” the report said.