* Catastrophe bond issuance seen rising to $7 bln in 2013
* Matches 2007 record; last year saw second highest issuance
* Yields squeezed higher by short supply, investor demand
By Sarah Mortimer
LONDON, Jan 31 The catastrophe bond market could
see $7 billion of net new issuance in 2013, matching a record
set in 2007, as issuers tap a cheaper alternative to
reinsurance, U.S. reinsurance broker Willis Capital Markets &
Advisory (WCMA) said in a report.
In the event of a natural disaster, insurers use the
principal from so-called "cat bonds" to absorb losses. Investors
use the bonds to diversify from other assets that have proved
extra volatile since the 2008 financial crisis.
Last year saw $5.9 billion of net new issuance, a 37 percent
increase over 2011 and the second highest ever, the report from
WCMA, Willis's capital markets division said.
Sales of new cat bonds were nearly $6 billion in 2008 before
the financial crisis led to defaults and curtailed activity.
But yields of between 5-7 percent for many cat bonds
compared with benchmark U.S. yields of just under 2 percent.
"(Investors) were disappointed to have fewer (cat) bonds
than necessary to meet their cash inflows," said Bill Dubinsky,
head of WCMA's Insurance Linked Securities.
"We believe investors will anxiously welcome the new
issuances that are in the pipeline," he said.
The world's No. 2 reinsurer Swiss Re also said it
expected increased interest in cat bonds.
Since January 2011, the Swiss Re Total Return Index recorded
weekly volatility level of 4.4 percent compared to 5.9 percent
for the Barclays Ba U.S. High Yield Index and 7.1 percent for
the S&P 500 Total Return index.
To see the full reports from Willis and Swiss Re, see the
Thomson Reuters Insurance Linked Securities Community