LONDON, (Reuters) – The California Earthquake Authority is seeking to raise about $150 million through a sale of catastrophe bonds to help it meet potential claims, market sources said on Friday.
The bonds are to be sold through the CEA's Bermuda-based Embarcadero Re vehicle, and offer protection against property damage in the event of a Californian earthquake, the sources said.
The CEA, publicly managed but privately funded, was set up to insure California homeowners against earthquake damage after the 1994 Northridge tremor prompted many commercial insurers to withdraw from the market.
The state-backed body issued its first cat bond in August last year. The size of the latest planned issue is indicative only, and could change depending on the strength of investor demand.
Separately, Munich Re, the world's biggest reinsurer, said it had raised $100 million of protection against European and U.S. windstorms by issuing cat bonds through its Bermuda-based Queen Street vehicle.
The issue marks the second time Munich Re has offloaded windstorm risk to the capital market this year, and benefited from buoyant investor demand, the reinsurer said.
“The response from investors was positive, particularly as the diversifying effect from cat bonds that are virtually uncorrelated with trends on the capital markets is even stronger in the current market environment,” said Munich Re board member Thomas Blunck.
Cat bonds are sold by insurers to capital market investors such as pension funds, who receive an income in return for agreeing to pay some of the issuers' claims if an earthquake or hurricane strikes.
Demand for the securities, developed in the mid-1990s to help insurers transfer some of their risk to capital markets, has been strong this year, reflecting growing appetite for investments that are insulated from financial market downturns.
Insurers sold a total of $3.6 billion of new cat bonds in the first six months of 2012, more than double the level reported a year earlier, and just short of the first-half record established in 2007, reinsurer Swiss Re said earlier this month.
(Reporting by Myles Neligan; Editing by Hugh Lawson)
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