LONDON Dec 11 European insurer Zurich
is seeking to raise $225 million through the sale of a
catastrophe bond to renew its cover for earthquake reinsurance
in the United States and Canada.
The bond will be sold through Zurich's Bermuda-based
Lakeside Re vehicle, and offer protection against potential
claims from damages caused by earthquakes in California and the
Pacific Northwest, sources with knowledge of the deal said on
Catastrophe bonds are used by the insurance industry to
transfer extreme risks, such as those for earthquakes or
hurricanes, to financial market investors, who receive a
handsome yield in return for agreeing to cover damages they
Cover from Lakeside Re III Ltd will cover fire, sprinkler
leakage, volcanic disturbance or eruption, tsunami and flooding
caused by dam breaches from earthquakes.
The new transaction will replace Lakeside Re II Ltd, which
matures at the end of 2012.
The proceeds from the sale of the notes will go into a U.S.
Treasury money market fund invested in T-bills set up
specifically for this transaction by Munich Re's asset manager
MEAG, according to a note from credit rating agency Standard &
Munich Re created a MEAG fund for Lakeside Re III, which has
been given as AAAm rating by S&P.
This is the same collateral strategy as used by Munich Re
for some of its own catastrophe bonds.
Investors can expect to receive a yield of 8-9 percent for
Lakeside Re III, a UK-based cat bond fund said.
Issuance of cat bonds currently stands at $5.6 billion
following a $400 million sale from USAA.
The offering from Zurich will push cat bond sales past the
$6 billion year-end total prediction made at the beginning of
the year by reinsurers and cat bond brokers.
(Reporting by Sarah Mortimer; editing by Stephen Nisbet)