Chartis issues $575m cat bonds

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  • The Chartis Building: Home to the insurer's Bermuda operations

    The Chartis Building: Home to the insurer's Bermuda operations

American International Group Inc’s property-casualty unit Chartis is issuing $575 million worth of catastrophe bonds to increase its protection against natural disaster claims.

In January this year, Chartis listed a $450 million catastrophe bond through Lodestone Re on the Bermuda Stock Exchange (BSX).

It is not clear whether the latest catastrophe bond offering will also be listed on the BSX. Yesterday, the Exchange declined to comment in response to our questions on the matter.

Bloomberg News reported that two $250 million portions of coverage for Chartis pay 11.25 percentage points and 10.25 percentage points more than the three-month Treasury bills.

A third $75 million portion pays nine percentage points more than the bills, the data show. All three mature in 2015 and protect against US hurricanes and earthquakes for AIG’s Chartis division.

The BSX has been striving to attract insurance-linked securities (ILS) like catastrophe bonds since a new Special Purpose Insurer classification was introduced by regulator the Bermuda Monetary Authority in late 2009 to provide a solid regulatory framework to accommodate ILS.

In September, the BSX announced it had surpassed $2 billion in ILS listed on the Exchange.

The securities pay attractive yields to investors who risk losing their principal in the event of a disaster meeting certain conditions.

One of their selling points is that, as an asset class they are uncorrelated with the financial markets.

Another is that it allows the capital markets to invest in the reinsurance industry without tying up their money in reinsurance companies, many of whose share prices have been trading at a hefty discount to book value.

However, this year has proved challenging for the cat bond market, because of the impact of the March 11 earthquake and tsunami in Japan. Since then, the Swiss Re Cat Bond Price Return Index has lost more than four percent.

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Published Dec 1, 2011 at 8:20 am (Updated Dec 1, 2011 at 8:17 am)

Chartis issues $575m cat bonds

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