Property and casualty insurers have been an important source of demand for the longer end of the municipal bond market as low interest rates this year kept retail investors on the sidelines, according to Peter DeGroot, a municipal bond strategist at Lehman Brothers in New York.
While limited, there was some scattered selling of muni bonds from insurers when four massive hurricanes swept through Florida and a number of other U.S. states and territories during a six-week period last year, causing an estimated $22.8 billion in insured losses."Despite 2004's
record insurance losses, insurance company demand for municipal securities did not appear to be adversely impacted," DeGroot
"While it is too early to accurately assess the claims produced by Katrina, or more broadly the 2005 hurricane season, losses appear to be well short of 2004's
record insurance claims," DeGroot
Much of the insurance company demand this year has been focused on 20-year maturities, which are currently trading rich relative to other sectors, according to DeGroot
.If the insurers were to begin selling muni bonds or backing away from the market, "that maturity range would likely suffer," DeGroot