By Sarah Mortimer
Oct 10 (Reuters) - A private catastrophe bond has beenlisted on the Channel Islands Stock Exchange, the first timesuch a deal has been made fully tradable in the secondarymarket.
The California Earthquake Authority (CEA) and reinsurancefirm Solidum Partners set up a special purpose vehicle (SPV) inGuernsey to issue cat bond notes through a transformerreinsurance contract.
The SPV - called Solidum Re Eiger IC Limited - provides $52million of earthquake protection for the CEA in the state via aprivately placed catastrophe bond.
Catastrophe bonds are used by the insurance industry totransfer extreme risks, such as those for earthquakes orhurricanes, to capital market investors. They receive a handsomeyield in return for agreeing to cover damages they considerunlikely.
Private cat bonds - sometimes called collateralisedreinsurance contracts - are similar in structure to theirpublicly traded peers, with capital set aside and pledged ascollateral against the risks they cover.
Private placement allow the issuer to chose which investorscan buy the notes, and they have traditionally been bought byinvestors to hold until maturity. In this case, however,investors will be able to trade the notes in the secondarymarket if an earthquake strikes California.
The private securitisation is the first cat bond to belisted on any exchange in the world, Bedell Cristin, the lawfirm behind the transaction, said in a statement.
The CEA, privately owned but publically funded, currentlybuys about $3.5 billion of reinsurance against earthquake riskseach year.
It has sponsored cat bonds worth $600 million via itsEmbarcadero Re vehicle and transferred another $52 million ofquake risk through Solidum Re Eiger IC Limited.
Solidum vehicles have issued over $100 million of privatecat bond notes to date, said Cedric Edmonds, partner at SolidumPartners and director of Solidum Re Eiger IC Limited.
"Solidum was the first entity to issue private cat bonds andis to date the only entity to have (its) private placementcat-linked notes traded," he said in a statement.
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(Reporting by Sarah Mortimer)
Keywords: CAT BOND/REINSURANCE