An early analysis of Hurricane Katrina's impact on the insurance industry shows that catastrophe bonds may emerge unscathed from the storm, which is expected to leave the industry on a whole with a mult-billion dollar bill, according to ratings agency Standard & Poor's.

S&P said yesterday, in a media release, that Katrina was expected to leave insurers, and reinsurers, paying out claims of up to $15 billion but catastrophe, or 'cat', bondholders were not likely to be hit because actual catastrophe losses are not expected to reach levels that would force the bonds to use principal and interest to pay claims.

Bonds are issued as debt and the bondholder generally is repaid principle, and possibly interest, at a specified time. With 'cat' bonds, holders have to forgive or defer some or all payments of principle or interest if actual catastrophe losses surpass a specified amount, or trigger.

"Based on a preliminary analysis, it appears that the damage caused by Hurricane Katrina will not result in any of the outstanding hurricane-related catastrophe bonds hitting their respective attachment points," said S&P credit analyst James Doona.

Catastrophe bonds were created in the wake of 1992's Hurricane Andrew as a means of allowing insurance risk to be sold to institutional investors in the form of bonds, thus spreading risk through capital markets instead of by traditional reinsurance means. S&P said it has ratings on $4.25 billion natural catastrophe bonds, and that $1.6 billion of those carry exposure to hurricane activity.

At least one of the cat bonds that S&P rates is based in Bermuda ? Helix '04 Ltd. ?a cat bond structured by global reinsurer Converium Ltd. as a five year, $100 million transaction to protect against losses from Atlantic hurricane activity, European windstorm activity and claims resulting from Japanese earthquakes. A Bermuda hedge fund, Nephila Capital, also specialises in investing in cat bonds.

At least ten insurers, including Converium, Swiss Re, and FM Globalhave used catastrophe bonds to obtain protection against losses caused by hurricanes, earthquakes, or other perils.