Swiss Re plans $125 mln cat bond for N.Carolina

By Catherine Evans

LONDON, July 13 (Reuters) - Swiss Re (RUKN.VX) plans to sell a $125 million catastrophe bond covering losses to North Carolina's insurer of last resort from hurricanes in the U.S. state, investors and credit rating agency S&P said.

Swiss Reinsurance America Corp will be cedent for the bond, to be issued via Cayman Islands vehicle Parkton Re.

Any payout, however, will be based on storm losses incurred by the North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association (NCJUA-NCIUA).

Swiss Re, the world's second-largest reinsurer, and Guy Carpenter are acting as arrangers for the deal.

Investors said the bond was expected to pay a coupon of 10.75 to 11.75 percent over Libor.

AIR Worldwide will be risk modeller for the transaction, which was rated B+ by Standard & Poor's late on Friday.

The notes will cover 16.67 percent of losses between an attachment level of $2.55 billion and an exhaustion level of $3.3 billion, S&P said, giving a 2.24 percent probability of attachment.

Created in 1969, the NCJUA and NCIUA offer basic property insurance to people not able to buy such cover commercially. While not an arm of the state government -- they are funded by property and casualty insurance companies that operate locally -- their operations are subject to review by North Carolina's insurance commissioner.

Parkton Re will be the first catastrophe bond sale associated with the NCJUA-NCIUA.

Insurers have used catastrophe bonds since the 1990s to manage their exposure to natural disasters by transferring potential losses to investors, who receive a high interest rate but risk losing their principal if a catastrophe occurs.

Nine new bonds totalling just under $1.5 billion have been sold this year, with 2009 issuance expected to reach about $3 billion. German reinsurer Hannover Re (HNRGn.DE) is also currently marketing a 75 million euro catastrophe bond.