A new Bermuda-based company has been set up to handle $182 million worth of catastrophe reinsurance by American Re.

Gold Eagle Capital Ltd has been set up by American Re to provide reinsurance coverage against losses from earthquakes and hurricane risk in the United States.

The company was specifically set up to deal with claims from hurricanes from the east coast and gulf coast and earthquakes in California or the Midwest.

But investors could lose their money.

There is a $126.6 million note issue -- a promise to pay -- that exposes investors to lose either, one third, two thirds or all of their money.

This would happen if the cost of catastrophic events exceeded certain levels, which are pre-designated by the company and written into the contract.

There is also a $50 million note issue and just under $5.5 million worth of Gold Eagle shares.

These parts of the deal expose all of the investors's money if a certain loss level is exceeded.

The loss triggers are based on indexes of industry losses resulting from one catastrophic event in each of three areas.

These models have been worked out by Risk Management Solutions Inc. and are based on possible industry losses if catastrophes of varying levels struck.

Only the event causing the largest industry loss would be used to determine investor losses and the risk period rurns through to March 31, 2001.

The innovative index is called The Modelled Index Linked Securities (ModILSSM).

"The Gold Eagle transaction serves as an integral element of American Re's overall catastrophe risk management strategy,'' said Charles Kerner, Managing Director of American Re Securities Corporation.

`We believe that the modelled index approach has significant advantages for both investors and issuers, and we intend to use similar approaches to provide innovative risk transfer solutions to our clients in the future.'' Hemant Shah, President of Risk Management Solutions said: "We established the Risk Managment Services CAT Index with a vision that it would serve as a valuable tool for supporting continuing innovation in risk transfer, particularly into the capital markets.

"American Re is one of Risk Management Services' most sophisticated clients, and we are pleased that they chose to use the Risk Management Services CAT Index in structuring this very innovative transaction.''