Catastrophe bonds are growing at their fastest pace in six years, and outstanding issues could reach $50 billion by 2018, up from their current $19 billion, according to BNY Mellon.
Cat bonds are risk-linked securities that transfer a specified set of risks associated with hurricanes or earthquakes from an insurer or a nation state to investors.
In a new report, BNY Mellon estimated that the total amount of insurance-linked securities, of which cat bonds are a subset, could reach $150 billion by the end of 2018.
Insurance-linked securities as an asset class will experience a compound annual growth rate of 25%, the report said. Cat bonds as a subset will grow by 20%, compared with 30% growth over the past nine years.
In a statement, BNY Mellon acknowledged that it acted as a trustee and paying agent, and collateral agent on cat bonds. Last year, it was trustee on 68% of all cat bonds.
Hedge funds and private equity initially dominated the cat bond investor base, according to the report. Now, more long-term investors such as pension funds are buying the products.
“Investors are attracted by the high yields in the current low-interest rate environment,” Dean Fletcher, head of EMEA Corporate Trust at BNY Mellon, said in the statement.