Cat-Bond Market Rises to Record With $8.5 Billion of Issuance
(Bloomberg) -- Catastrophe bonds broke a record during the first half of the year with about $8.5 billion of new securities issued, according to a report from Swiss Re AG.
The insurance-linked securities market could end up with more than $10 billion in issuance for the full year, the reinsurer said in a report released Wednesday. The market was helped in part by older securities that matured and gave investors more money to put back to work, as well as demand from those seeking to diversify risks, according to Swiss Re’s Judy Klugman.
The performance through June of the catastrophe-bond market, which can help provide capital for risks from natural disasters like hurricanes, topped a previous half-year record of $8.4 billion of issuances in 2017. It has grown in popularity in recent years as investors hunt for unique assets. Some of the bonds issued during the first half half covered risks such as California earthquakes as well as windstorms and wildfires.
“Adding these types of risk to your overall fixed income portfolio is diversifying to the rest of your assets,” Klugman, global head of sales for Swiss Re Capital Markets, said in an interview. “If the financial markets are depressed, that doesn’t mean the likelihood of a California earthquake is any greater.”
Pandemic risk could grow in popularity for these types of bonds, according to Swiss Re. While securities have covered that risk in the market before, the reinsurer is “optimistic” that it will be an area of growth in the coming years.
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