The amount of insurance-linked securities outstanding may reach $150 billion by the end of 2018 as institutional investors including pension funds search for yield, Bank of New York Mellon Corp. said in a report.

Of the total insurance-linked securities market, which helps finance protection against natural catastrophes such as earthquakes and tornadoes, $50 billion is expected to come from catastrophe bonds, more than double the current level, according to the report.

“The initial investor base was dominated by hedge funds and private equity, but we are seeing more long-term investors such as pension funds buying cat bonds,” said Dean Fletcher, head of corporate trust for Europe, the Middle East and Africa at BNY Mellon. “Investors are attracted by the high yields in the current low interest rate environment.”

Natural catastrophes cost the global insurance industry about $13 billion in the first half of 2013, while the economic losses were about $45 billion, according to the report. That means insurers covered less than one-third of the costs of disasters, BNY Mellon said.

The report estimates a compound annual growth rate of 25 percent for insurance-linked securities.

–Editors: Steve Bailey, Jon Menon