January 17, 2012 / 4:51 PM / 8 years ago

Catastrophe bond market set for busy Q1 - Aon

LONDON, Jan 17 (Reuters) - Catastrophe bond issuance looks set to remain busy in the first three months of 2012 after activity picked up strongly in the final quarter of last year, Aon Benfield Securities said on Tuesday.

Nearly $2 billion of bonds were issued from September to December last year, making it the most active quarter of 2011, Aon said in its latest report on the insurance-linked securities market.

“The first quarter of 2012 is expected to be active with a strong pipeline of new deals,” Aon said.

“Additionally, we expect the secondary market to keep up its resiliency at or above the 2011 trading volume.”

Aon’s report tallies with market participants who say cat bond issuance rebounded in the final quarter of 2011, driven by pent-up demand after new hurricane risk models raised loss estimates on some bonds and dampened market activity mid-year.

Cat bond activity is also subject to a seasonal lull in the second half of the year as the market sits out the June to November U.S. hurricane season.

Catastrophe bonds were developed in the 1990s to help insurers and reinsurers manage their exposure to natural disasters by transferring some of the risk on their books to pension funds and other capital market investors.

Buyers of cat bonds are largely insulated from wider macroeconomic or financial market developments, but risk losing some or all of their money if a catastrophe occurs.

The catastrophe bond market was worth $13.57 billion at the end of 2011, down from $14.04 billion the previous year, according to reinsurer Swiss Re. (Reporting by Myles Neligan)

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