Costly damage caused to Amtrak’s infrastructure by Superstorm Sandy in 2012 is one of the reasons the company has obtained $275 million of catastrophe bond insurance coverage this month.

The three-year cat bond notes were issued in Bermuda last week by special purpose insurer PennUnion Re Ltd.

It is the first time the US train company has used capital markets to increase its insurance coverage.

In a statement, Amtrak said the protection insures against damage to Amtrak-owned infrastructure in the Northeast Corridor (NEC) in the event of a natural disaster due to storm surge, wind damage or earthquake.

Last year the company carried almost 31 million passengers. The perils covered by the cat bond are storm surge in New York City and Delaware, named storm wind protection across eight northeast US states, and earthquake protection in five of those states.

“This is the first time Amtrak has used the capital markets to broaden our base of insurance coverage,” said Gerald Sokol, Amtrak executive vice-president and chief financial officer.

“The catastrophe bond market provides us with a means to diversify our sources of insurance in a cost effective manner.”

In its statement, the company said the cat bonds “provide a capital markets source of insurance risk capital that will provide protection in the unlikely event that a natural disaster would cause damage to Amtrak-owned infrastructure in the NEC, such as damage suffered by Amtrak from Superstorm Sandy in 2012”.

It noted that Superstorm Sandy created a storm surge that resulted in seawater inundating both tubes of the Hudson River tunnel and two of the four tubes of the East River tunnel, causing more than $1 billion in damage.

Passenger Rail Insurance Liability, a Bermuda-based insurance company wholly-owned by Amtrak, entered into a reinsurance contract with PennUnion Re to provide the catastrophe protection.