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2010 catastrophe bonds second only to 2007: Analysis


NEW YORK—Catastrophe bond issuance followed its historical pattern of having an active fourth quarter, concludes a report by Willis Capital Markets & Advisory.

The report issued Thursday said there were 10 new nonlife cat bond issues totaling $2 billion in the final quarter of last year, a 25% increase over the $1.6 billion issued in the final quarter of 2009.

Total nonlife capacity issued in 2010 was $4.8 billion, a 41.2% increase over 2009’s $3.4 billion. That makes 2010 the second-largest for issuing cat bonds since the $7.2 billion issued in 2007, according to the report by the New York-based unit of Willis Group Holdings P.L.C.

“The quarter was notable not only for the number and volume of issuances, but also the welcome return to the market of diversifying (i.e. non-U.S. peak cat) risks, including new cat perils and life- and health-related risks,” says the report.

“(Insurance-linked security) investors have long been hungry for diversification and it is particularly interesting to observe how the market has responded to these issues,” according to the Willis report. “Of the 10 nonlife issues that were brought to market during the quarter, no fewer than five are exclusively diversifiers and another two included diversifying elements.”

“Alongside these, three life- and health-related programs also arrived on the scene, of which two presented new risks to the market,” according to the report, “ILS Market Update, Q4 2010: Strong Issuance Activity to Close out the Year.”

Observers have noted that catastrophe bonds are becoming an integral part of insurers’ reinsurance protection.

Copies of the report were not available immediately.