LONDON: Insurers raised $1.5 billion of protection against disaster claims by selling catastrophe bonds in the first three months of 2012, making it the busiest first quarter since the cat bond market's inception in the mid-1990s, broker Aon Benfield said on Tuesday.
When three bonds that were marketed but did not close before March 31 are included, the total rose to just under $2 billion, tallying with a study published on Monday by financial services research house Clear Path Analysis.
Over the year as a whole, insurers and reinsurers will probably issue between $5 billion and $6 billion of cat bonds, up from $4.6 billion in 2011, Aon estimated. The busiest ever year for new issuance in the market was 2007, when $7.3 billion of cat bonds were placed.
"We are very pleased with the record volumes of activity we saw in the market during the first quarter of 2012, which highlights the importance of insurance-linked securities as both a risk transfer vehicle and an investment product," said Paul Schultz, Chief Executive of Aon Benfield Securities.
Cat bonds were developed in the 1990s to allow insurers to pass on some of the natural disaster risk on their books to institutional investors, freeing up capital for alternative lines of business.
Buyers of cat bonds receive interest payments that are largely immune to wider economic or financial market developments, but risk losing some or all of their money if a catastrophe occurs.
The cat bond market's active first quarter partly reflects pent-up investor demand for the securities after a spate of costly natural disasters, including a devastating earthquake and tsunami in Japan, choked off new issuance for much of last year.
Demand for the bonds has been strong since the 2008 credit crunch and subsequent euro zone sovereign debt crisis, which have fuelled investor appetite for "uncorrelated" assets that are insulated from downturns in mainstream financial markets.
Inflows of cash into cat bonds and other insurance-linked securities have helped maintain abundant supplies of capital in the insurance sector despite catastrophe losses in excess of $100 billion during 2011, which made it the second-costliest year on record for natural disasters.
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