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Cat bond issuance likely to grow

BERN, Switzerland (Bloomberg) Axa SA, Europe’s second-biggest insurer, said total issuance of bonds designed to protect insurers from the risk of paying out on natural disasters could increase by 30 percent to $6 billion this year.

“More new sponsors are coming to the market” looking for an alternative for reinsurance, while insurers issue more of these catastrophe bonds to raise capital after a year of heavy losses from natural disasters, Christophe Fritsch, head of insurance-linked securities at Axa Investment Managers, said in an interview in Bern, Switzerland.

The amount of catastrophe bonds outstanding may expand to $14.5 billion in 2012, from about $13.6 billion this year, according to Swiss Re Capital Markets, a unit of the world’s second-biggest reinsurer. Cat bonds returned 6.2 percent since April 1, after dropping four percent following the March earthquake in Japan, the Swiss Re Global Cat Bond Performance Total Return Index shows.

Institutional investors including pension funds, Fritsch’s main clients who buy cat-bond funds, receive an average return of seven percent, largely insulated from macroeconomic or financial-market developments, Fritsch said. Meanwhile, they risk losing some or all of their money if a catastrophe occurs.

Fritsch has headed a team of four portfolio managers in Paris since 2008 and manages about $300 million in insurance-linked assets through two funds. Axa Investment Managers is the asset-management unit of Paris-based Axa.

Year of the cat: Damage from natural disasters in 2011 like this, seen after an earthquake in Kurihara, Japan, has dented reinsurance industry capital

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Published February 06, 2012 at 1:00 am (Updated February 06, 2012 at 8:37 am)

Cat bond issuance likely to grow

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