LONDON (Reuters) – Strong demand for a $270 million catastrophe bond allowed its issuer, U.S. Nationwide Mutual Insurance Co, to price it more cheaply than expected, leaving investors looking for a higher return from future issues.
Investors have been keen to buy "cat bonds", which insurers use to pass on the risk of having to make big payouts towards damage caused by natural catastrophes such as hurricanes and earthquakes.
But supply has been slow so far this year, distorting price levels, as insurers are still assessing the impact of superstorm Sandy, a 1,000-mile wide storm that struck the northeast of the United States in October and is expected to cost the insurance industry up to $25 billion.
This meant that the latest bond, which provides protection against U.S. hurricanes and earthquakes, was completed on Monday at a coupon of 5.25 percentage points over U.S. money market funds. It was originally marketed with a price guidance of between 6.75 percent and 7.75 percent.
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