Bloomberg News

Barclays Expands Cat Bond Access as Debt Gains to March Level

October 03, 2011

Oct. 3 (Bloomberg) -- Barclays Capital is seeking to boost issuance of bonds designed to protect insurers from the costliest natural disasters as the debt rallies towards levels last seen before Japan’s earthquake in March.

Barclays has started a program to expand the pool of buyers able to purchase hurricane- and earthquake-linked securities, which are typically $150 million and only available in the over- the-counter, or private, markets, according to a statement today. Investors will be able to acquire them in documented note form, and in sizes smaller or larger than the usual transaction, the statement said.

The approximately $12 billion catastrophe bond market is expanding as the securities recover from a 3.5 percent decline in the two weeks following the March 11 quake in Japan that caused a tsunami and made the Fukushima Dai-Ichi nuclear power station spew radiation. The securities have rallied 2.8 percent since Aug. 26 as Hurricane Irene approached the U.S. East Coast. Bank of America Merrill Lynch’s U.S. Corporate & High Yield Master index has lost 0.45 percent and the Standard & Poor’s 500 Index slid 3.9 percent.

“We have seen increased interest from corporates and governments in hedging their specific risk exposures via the insurance-linked market” since the earthquake, said Daniel Brookman, head of event-linked products at Barclays in New York. “We expect that this program’s existing documentation and low transaction costs will enable a broader range of sponsors to come to market more quickly and frequently than has been seen to date.”

Cat Bond Index

Insurance companies and reinsurers sell cat bonds to help cover their most extreme risks, with the proceeds of the issues set aside and paid out in the event of a qualifying disaster. Buyers get a relatively high interest margin for holding the notes and risk forfeiting their entire investment if the securities are triggered before they mature. Hurricane season in the Atlantic begins June 1 and ends Nov. 30.

The Swiss Re Cat Bond Price Return Index rallied to 94.06 last week, its fourth consecutive period of gains and the highest since March 18. The securities are down 3.8 percent for the year, the data show.

The program is an extension of Barclays’ event-linked swaps business and event-linked replicator product suite, the unit of London-based Barclays Plc said in the statement.

--Editors: Pierre Paulden, Alan Goldstein

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net;


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