Zurich Insurance Group AG obtained $270 million of protection with bonds designed to guard Switzerland’s biggest insurer from losses linked to earthquakes in North America.
The firm bought protection from Lakeside Re III Ltd., a Bermuda-based special purpose reinsurance company that issued the so-called catastrophe bonds due in three years in an oversubscribed offering, Zurich said today in a statement on its website. The securities pay investors 800 basis points more than the rate on quarterly Treasury bills, according to data compiled by Bloomberg.
The bonds replace $225 million of debt that matures on Jan. 8 and paid a spread of 775 basis points, or 7.75 percentage points, according to Munich Re, which helped structure the transaction. The new bonds, which are also linked to damage from tsunamis and volcanic eruptions sparked by earthquakes, cover losses in areas from Canada’s British Columbia province to Arkansas, Standard & Poor’s said in a Dec. 28 report that rated the securities B+(sf).
“Investors continue to appreciate the diversifying effect from cat bonds that are virtually uncorrelated with trends on the capital markets,” Thomas Blunck of Munich Re said today in a statement.
Cat bonds have returned more than 10 percent in three out of the past four years, including a 10.5 percent gain in 2012, according to the Swiss Re Cat Bond Total Return Index.