Munich Re expects market to attract new investors

German reinsurer Munich Re expects between $5.5bn and $6bn of new catastrophe bonds to be issued in 2011.

The reinsurer added that new issues would again exceed the volume of maturing bonds during the year, resulting in further growth of the total outstanding issuance.

Munich Re’s predictions are in line with those of reinsurance broker Willis Re, which also expects $6bn of new catastrophe bond issuance.

The reinsurer also expects catastrophe bonds to attract a wider investor base in 2011. One of the criticisms of insurance-linked securities is that only a limited range of investors have an appetite for them.

"As a result of the low interest-rate environment in the capital markets, catastrophe bonds will become increasingly attractive for major institutional investors such as pension funds, which have so far not invested in this asset class,” said Munich Re board member Thomas Blunck, who oversees Munich Re's Risk Trading Unit. “Catastrophe bonds offer comparatively attractive returns on transparent risks. Investors also increasingly recognise the diversification effect in their portfolio, as these bonds are not correlated with their other risks.”

The company said traditional investors played a much bigger part in the catastrophe bond market in 2010. Their share of the market rose to over 20% from roughly 5% in 2009.

In 2010, $5bn of new catastrophe bonds was issued, against $4bn of maturities. In 2011, Munich Re expects just under $4bbn of bonds will mature.