| LONDON, April 17
LONDON, April 17 Munich Re has sold a
$500 million catastrophe bond to protect two North Carolina
underwriting associations against hurricane losses as insurers
increasingly choose to cover risks with bonds rather than buying
Insurers and reinsurers use so-called "cat bonds" to
transfer major risks such as storms and earthquakes to bond
market investors, freeing up their capital to underwrite new
The cat bond sector ended 2012 with more than $6 billion in
sales - the second highest in the history of the market.
Total issuance so far in 2013 stands at $1.7 billion, but
brokers predict that sales could reach $7 billion by the end of
the year - matching a record set in 2007.
Since the start of the year, the catastrophe bond market has
offered cheaper insurance against natural disasters than the
reinsurance sector. The influx of investors seeking protection
from mainstream financial shocks has meant yields have fallen to
an all-time low, but investors can still get higher returns from
cat bonds than in the wider financial markets.
Munich Re, the world's biggest reinsurer, increased the bond
offer from $200 million in the marketing phase after high demand
The cat bond, called Tar Heel Re, will protect the North
Carolina Insurance Underwriting Association (NCIUA) and the
North Carolina Joint Underwriting Association (NCJUA) from
hurricanes in the region.
Credit rating agency Standard & Poor's assigned a B+ rating
on the Series 2013-1 notes issued by the Bermuda-based special
purpose vehicle - which are used by insurers to sell catastrophe
The notes cover losses in North Carolina from named
hurricanes, tropical storms, and tropical cyclones and will
trigger a payout if one event or a combination of disasters over
a year adds up to $100 million in insured losses, S&P said in a
The notes priced at 850 basis points above U.S. money market
funds, which was much lower than the coupon range of 9 - 10
percent the bond was marketed at, investors say.
Tar Heel Re will cover the North Carolina association for
three years, and is the fourth catastrophe bond to be sponsored
by the NCJUA and NCIUA.
The new deal will replace expiring cover from another cat
bond deal - another bond called Johnston Re, a $202 million cat
bond programme issued by Munich Re - that will expire in May
The NCJUA and the NCIUA first sponsored a cat bond in 2009
with a $200 million transaction with Swiss Re's Parkton Re
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(Reporting by Sarah Mortimer; Editing by Elaine Hardcastle)