The April through June period set a new quarterly record for the volume of catastrophe bonds issued.

According to a report by Willis Capital Markets & Advisory (WCMA), $4.5 billion of non-life catastrophe bond capacity was issued in 17 deals in the second quarter, compared with $3.3 billion issued in 17 deals in the same quarter of last year. This beats the previous quarterly record of $3.5 billion of non-life catastrophe bond capacity issued in the second quarter of 2007.

Catastrophe bonds pay investors an attractive rate of interest but the principal is at risk if the bond is triggered by a certain level of insured losses relating to a specified event.

Bermuda has become the centre of the catastrophe bond world and earlier this year, the Bermuda Stock Exchange passed the $10 billion mark in value of listed insurance-linked securities, which include cat bonds.

The influx of third-party capital into the reinsurance market, coupled with the lack of catastrophe activity, has put downward pressure on reinsurance rates and squeezed margins for Bermuda’s traditional reinsurers.

The report noted that the record issuance was driven by two massive transactions — the largest ever cat bond, Everglades Re 2014, a $1.5 billion bond for Florida Citizens, listed on the BSX, and two Sanders Re 2014 takedowns totalling $950 million in new capacity for Allstate.

WCMA CEO Tony Ursano said: “In the second quarter, the ILS market continued to evolve, progressing its gradual transition from a niche and emerging market into a more mainstream alternative asset class.

“Not only did we see the largest ever single transaction cat bond in the second quarter, but we also witnessed several other notable achievements including the first indemnity-trigger cat bond for a primary company’s Euro Wind exposure, the first yen-dominated deal, as well as the fastest ever takedown.”

Mr Ursano expects a slowdown during the current quarter, but for business to pick up again towards the end of what should be a record year for cat bonds.

“While we expect Q3 to be relatively quiet, Q4 should be busy even if spreads remain flat or have a slight uptick against the back drop of a loss free third quarter,” Mr Ursano said.

“Given the spread environment and the busy second quarter, we feel optimistic that 2014 will end up a record setting year for the cat bond market. By year end, we expect eight to nine billion dollars in total non-life cat bond issuance, whilst the broader ILS market, including private deals and deals with coverage extending beyond property cat, should exceed this considerably.”