LONDON (Reuters) – Catastrophe bond sales doubled in the first six months of 2012, falling just short of the record first-half issuance of 2007 thanks to growing demand from capital market investors, reinsurer Swiss Re said on Tuesday.
Insurers issued $3.6 billion worth of the instruments in the six months to June, double the $1.8 billion sold in the same period last year, the world's No.2 reinsurer said in a report.
Cat bonds, which offer investors an income in return for agreeing to pay some of an insurer's claims if a natural disaster strikes, are increasingly popular because they carry higher yields than regular bonds and are insulated from economic shocks.
“The broad investor base sees value in a diversifying and non-correlated asset class,” Swiss Re said.
Outstanding cat bonds now have a combined value of $14.7 billion, up from $13.7 billion at the end of 2011, and the market looks set to post its first year of growth since 2007, Swiss Re added.
In that year, first-half issuance reached a record $3.8 billion.
The market has contracted in each of the last four years because new issuance failed to keep pace with the expiry of bonds issued in 2006 and 2007.
A total of 16 insurers and reinsurers, including Allianz , Chubb, Travelers and the California Earthquake Authority, issued cat bonds in the first half of 2012.
Issues included a $750 million placement from state-backed Florida Citizens, the biggest ever in a single tranche.
The majority of cat bond sales are designed to protect insurers against claims related to U.S. windstorms, and issuance typically drops off sharply with the onset of the June-to-November Atlantic hurricane season.
Cat bonds were developed in the mid-1990s to help insurers and reinsurers pass on some of the natural disaster risk on their books to mainstream investors, freeing up capital for alternative lines of business.
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