Institutional investors are behind the popularity in the asset class

Tornado hurricane storm catastrophe

Catastrophe bond sales have increased by more than one-fifth over the first three months of 2012, the Financial Times reports.

The surge in sales of the bonds, issued by insurers, reinsurers or corporations to buy cover against natural disasters from capital markets, is a result of an influx of new investors including hedge funds and pension funds.

Data from Guy Carpenter (GC) shows that general insurers issued $1.64bn (£1.08bn) worth of catastrophe bonds, also known as index-linked securities (ILS), over the first quarter, a 22% increase on Q1 2011. This takes the total value of catastrophe bonds outstanding to $16bn, the highest-ever level.

Fund managers have turned to the catastrophe bond market in response to the low rates of return available from the more traditional asset classes.

There are fears that the popularity in catastrophe bonds could diminish when interest rates begin to rise again. But GC Securities global head of ILS structuring Cory Anger said investors have analysed the returns and decided the ILS asset class can deliver the returns they desire.

Anger said: “This stable capital has spent years evaluating the catastrophe-risk asset class, looking for both stable returns and, in the aftermath of covered events, orderly payment of losses.”

Secquaero Advisors chairman Dirk Lohmann said the losses experienced by the catastrophe bond market have helped new investors understand the asset class and encouraged them to by ILSs.

Lohmann said: “It helped many institutional [investors] who were sitting on the sidelines to get a better understanding and feeling for this marketplace.”