LONDON (Reuters) - 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 yesterday.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 consider unlikely.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 US 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 & Poor’s (S&P).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 eight to nine 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.