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With forecasts for a quiet hurricane season, investors are clamoring for bonds designed to protect against losses from natural disasters.
Catastrophe bonds, or "cat bonds," allow insurers to transfer risks from such disasters to investors, who earn regular payments for providing the coverage.
Investors are increasingly attracted to cat bonds because of their solid returns, historicallylow default rates and reliability compared with recent swings in equity, "junk"-bond and commodity prices.
Sales of cat bonds have hit $3.4 billion already this year, according to data from Goldman Sachs GS +0.59% . That is more than double the $1.6 billion sold over the same period last year.
On Wednesday, units for Travelers Cos. TRV +1.01% closed on a new three-year, $250 million cat bond, which on May 22 had been increased from a planned $150 million deal because of demand, said Cory Anger, managing director at Guy Carpenter & Co.'s GC Securities unit, its lead structurer.
Total returns as measured by a benchmark index from Swiss Re have hit 2.14% year to date, a turnaround from their negative 1.53% return to this point in 2011 after the cat-bond market was rocked by disasters such as the Japan earthquake.
If investors had put money into cat bonds alongside the Swiss Re index between early June 2011 and June 1, 2012, they would have made a return of 7.6%, compared with 5.5% for the Barclays BB U.S. High Yield index and minus-1.7% for the S&P 500....MORE