Investors Bet on Catastrophe Bonds

...markets, wealthy individuals and big institutions are flocking to hedge funds that buy so-called catastrophe bonds and other investments tied to the probability of Gulf Coast hurricanes, Japanese earthquakes, large snowfalls in Canada and other natural disasters.

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“Any other hedge fund might have had problems raising money after the Lehman collapse, but these guys have been going gangbusters,” said Judy Klugman, managing director at Swiss Re Capital Markets, the world’s largest underwriter of catastrophe bonds.

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Catastrophe bonds and other insurance-related securities have no correlation to the broader markets. In 2008, the Swiss Re catastrophe bond index rose 2.3 percent, compared with a loss of 38 percent in the Standard & Poor’s 500-stock index. The catastrophe bond index returned 10.5 percent from 2007 through 2010, compared with an 11 percent fall in the S.&P.