Posted on 17 Feb 2009
France's biggest reinsurer, Scor SE, sold $200 million of three-year bonds to transfer the risk of losses on U.S. earthquakes and hurricanes, the first issue of its kind since the collapse of Lehman Brothers Holdings Inc.
“Scor’s deal should be a breakthrough for catastrophe bonds,” said Christian Bruns, a fund manager at Clariden Leu in Zurich. He bought Paris-based Scor's notes and expects more so-called cat bonds to be sold this year.
The market for catastrophe bonds was hurt by Lehman’s failure in September because some deals relied on the bank to guarantee assets used to make coupon payments. One issuer, Allstate Corp.’s Willow Re Ltd., didn’t make a full interest payment this month, the second cat bond to default in a decade.
Scor’s deal offers investors more information on the assets backing the bonds than on previous transactions, said Karsten Bromann, chief risk officer at Solidum Partners AG, a Zurich- based hedge fund.
“Investors are being updated on a regular basis about the collateral portfolio, which can only be invested in high-grade assets such as government-backed debt,” said Bromann, who bought the Scor bonds.
Insurers sell cat bonds to protect against natural disasters, and buyers demand higher yields because they risk losing their investment if the catastrophe is large enough.