LONDON (Reuters) – Expectations that catastrophe bond investorswill not lose money as a result of superstorm Sandy have beenshaken by an estimate that losses for insurers from the Oct. 30storm will top $20 billion.

A loss of that magnitude would trigger payouts on twocatastrophe bonds sponsored by Swiss Re, the world's second-largestreinsurer, according to market participants.

Cat bonds transfer insurers' potential losses from the worstnatural disasters to capital markets investors, who receive heftycoupon payments but risk losing all or part of their principal ifan event such as a hurricane or earthquake occurs.

A payout is a rare occurrence, with only eight of some 210property catastrophe bonds issued since 1997 ever beingtriggered.

Disaster modelling company RMS confirmed on Wednesday that itexpects insured losses from the Category 1 storm which slammed intothe east coast of the United States to reach $20 billion to $25billion.

At the high end of the range, RMS's estimate exceeds those ofpeers AIR and Eqecat, whose top estimates were $15 billion and $20billion, respectively.

Seen at risk of a payout that would prove costly for investorsare tranches of two catastrophe bonds issued by Swiss Re throughits Successor X and Mythen Re vehicles to cover the reinsureragainst losses from U.S. hurricanes.

They are the $80 million F4 tranche of Successor X Ltd's Series2011-3 bond and $250 million of class H notes issued by MythenLtd.

A Swiss Re spokeswoman said the firm could not comment.

Previous commentary from industry participants such asreinsurance broker Willis and credit rating agency Standard &Poor's had suggested Sandy's impact on catastrophe bonds would bemuted.

A final decision on whether the bonds have been triggered willcome when information-aggregator Property Claims Services (PCS)releases its loss data, which usually comes within 30 days of astorm making landfall.

U.S.-based PCS provides loss estimates which are used by themajority of cat bonds to define whether an insurance eventqualifies for a payout under the terms of the deal.

Investors with knowledge of the transactions said it would take$16 billion in insured losses to trigger Successor X's F4 notes,and $22.4 billion of losses for a Mythen Ltd payout.

“Sandy may have caught a lot of investors by surprise,” said oneU.S.-based cat bond fund.

Some aspects of Sandy, such as the extensive flooding it caused,are reminiscent of 2005's Hurricane Katrina, claims from whichcrept up to more than $40 billion, making it the insuranceindustry's costliest-ever natural disaster and triggering losses onsome cat bonds.