Catastrophe risk securitisations reached record levels during the first eight months of 2006, and more are expected before the end of the year.

In August, securities issued reached $2.7 billion, exceeding the $2 billion issued during the whole of 2005.

The growth in cat bonds results from a shortage of catastrophe reinsurance and the near disappearance of the retrocession market following the 2005 US hurricanes. Many of the contracts cover US hurricanes.

Swiss Re is prominent among the sponsors and facilitators. Other sponsors include Tokio Marine & Nichido Fire Insurance, Hannover Re, Endurance Re, Lloyd's and, unusually, the US energy company Dominion Resources, which has raised $50 million to protect its Gulf of Mexico assets against hurricanes.

Swiss Re is responsible for the largest catastrophe risk securitisation so far, a $950 million multi-year, multi-peril programme called Successor, because it is a follow up vehicle to two previous transactions, Pioneer and Arbor. Successor covers four peak risks: North Atlantic hurricane, European windstorm, California earthquake and Japanese earthquake. Investors can choose between different risk layers and trigger options within single peril and multi-peril tranches. This spread of options enabled Swiss Re to attract private equity investment for the first time, in addition to institutional investors and hedge funds.

The Lloyd's vehicle is Thunderbird Re, a Cayman Islands special purpose company that will give Lloyd's syndicates access to a pool of securitised reinsurance capacity for US earthquake and windstorm in 2007. Lloyd's comments, "Many Lloyd's insurers are too small to justify the costs of securitising parts of their catastrophe book individually. But by effectively pooling their resources, they can access the capital markets and find new sources of capacity. This is a significant breakthrough, enabling the Lloyd's market to access cat bonds on a cost effective basis."

Outside the United States, cat bonds have been issued to cover perils in Japan, Mexico and Australia. Tokio Marine & Nichido Fire Insurance Co sponsored a $200 million five year bond to securise Japanese typhoon risk at a price that reflected its diversification value of largely US risks. Early this year, Swiss Re issued a $100 securitisation of Australian earthquake and windstorm, and the government of Mexico sponsored a $160 million earthquake bond to enable it to finance rescue and rebuilding in case of a disastrous earthquake.