However, while these catastrophe bonds return higher yields, the risk is also higher with principals in danger of being lost in major disasters.
Additionally, issuance slipped to four year lows in 2015, Aon said. The report said that $5.2 billion cat bonds were issued in the 12 months ending June 30, posting a dip of $1.8 billion or 35% from the previous year. Aon reported that some investors shied away from the securities as they went bargain hunting elsewhere.
“The overall lower issuance levels were driven by a number of factors including competition from traditional markets,” Aon emphasized. “Despite the lower supply of catastrophe bonds for sale, many investors were reluctant to increase bids, preferring to hold onto cash in anticipation of new issues.”
The doldrums hit the cat bond market after it hit a record $27 billion at the end of the first quarter of the year, according to industry monitor Artemis.