East Japan Railway Company has secured $260 million in earthquake coverage through a securitization bond placed by Munich Re utilizing Aon Corp.'s investment banking group Aon Capital Markets, the two companies said.
According to Munich Re, the bond gives the railway company coverage in case of a major earthquake in greater Tokyo. The program not only covers property losses but also business interruption losses, which Munich Re said is difficult to obtain from Japan's insurers.
"This transaction has combined reinsurance and capital markets to provide a unique capacity to our client," said Paul Schultz, president of Aon Capital Markets, in a statement.
"The response to the issue shows that the market for insurance-linked securities has not on the whole been impaired by the uncertainty on the credit markets but continues to be attractive," said Thomas Blunck, the member of the board of management responsible for the risk trading unit at Munich Re, in a separate statement.
The trigger for pay-out is based on magnitude values defined by the Japan Meteorological Agency. The event must be recorded within a 44-mile radius of a central point in Tokyo during a loss event.
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