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Willis expects record catastrophe bond volumes this year

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(Reuters) — The nonlife catastrophe bond market issued record volumes during the second quarter, Willis Capital Markets & Advisory said, adding that it expects full-year issuance to be between $8 billion and $9 billion.

Catastrophe bonds help insurers manage their exposure to natural disasters by transferring potential losses to investment funds. Investors receive a high yield on the bonds in return for agreeing to cover damages they consider unlikely.

A global slump in interest rates since the financial crisis has tempted more and more pension funds, institutional investors and high net-worth individuals to invest in catastrophe bonds and other capital market products.

Nonlife catastrophe bond capacity rose 36 percent to $4.5 billion in the second quarter, WCMA said, driven by an Everglades Re $1.5 billion bond for Florida's Citizens Property Insurance Corp. and two Sanders Re bonds totaling $950 million for Allstate Corp.

"We feel optimistic that 2014 will end up a record-setting year for the (catastrophe) bond market," WCMA Chief Executive Tony Ursano said, adding that he expected a "relatively quiet" third quarter and a "busy" final one.

WCMA is the capital markets arm of reinsurance broker Willis Re.