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Investor appetite for catastrophe bonds growing: PCS analysis

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The use of catastrophe bonds is growing in 2012, according to a report from Property Claim Services.

The report, “PCS Catastrophe Bond Report: Is It 2012 or 2007?”, notes that approximately $3.6 billion in catastrophe bonds were issued during the first half of 2012, up from $2.2 billion in the first half of 2011. Moreover, the number of catastrophe bond deals has increased with 16 deals closed in the first half of 2012, up 31% from the 11 completed in the same period in 2011.

Gary Kerney, assistant vp of Property Claim Services, wrote the report concluding that investor appetite for cat bonds has been growing for a variety of reasons.

“With new bond features that facilitate portfolio management for catastrophe funds and other institutional investors, newer issuances have become particularly attractive,” he said in the analysis. “Further, the decoupling of catastrophe bond prices from reinsurance rates indicates that issuers can secure (relatively) inexpensive capital while still allowing investors to meet their own objectives.”

However, the report says that catastrophe bond activity in the third quarter, which historically is the quietest quarter of the year, will determine the market’s strength.

“A catastrophe bond deal pipeline for the third quarter already exists, and we expect the robust year for issuance to continue,” the unit of Jersey City, N.J.-based Verisk Analytics Inc. said in the report. “Therefore, the test of growth will be the number of transactions and their limits compared with statistics from the same quarter in past years.”