Bloomberg News

AIG’s Chartis Sells $575 Million in U.S. Catastrophe Bonds

December 01, 2011

(Updates shares in fifth paragraph.)

Nov. 30 (Bloomberg) -- American International Group Inc.’s property-casualty unit is increasing the protection it receives through catastrophe bonds with the issuance of $575 million in securities, according to data compiled by Bloomberg.

Two $250 million portions of coverage pay 11.25 percentage points and 10.25 percentage points more than the three-month Treasury bills. A third $75 million portion pays 9 percentage points more than the bills, the data show. All three mature in 2015 and protect against U.S. hurricanes and earthquakes for New York-based AIG’s Chartis Inc. division.

Insurers are turning to capital markets to guard against the costliest disasters. The Swiss Re Cat Bond Price Return Index has lost more than 4 percent since the March 11 earthquake and tsunami in Japan. The securities pay higher-than-benchmark yields to investors who risk losing their principal in the event of a disaster meeting certain conditions.

“We had anticipated growth in 2011, but there are a number of factors in the market,” said Paul Schultz, president of Aon Benfield Securities Inc., a unit of Chicago-based broker Aon Corp. “The first is just the number of global cats, as well as the Japan earthquake which had a direct impact in the market.”

AIG advanced 10 percent to $23.31 at 1:05 p.m. in New York. It has fallen about 52 percent this year compared with the decline of less than 1 percent for the Standard and Poor’s 500 Index. Marie Ali, a Chartis spokeswoman, declined to comment.

Schultz said the cat-bond market adjusted to a change in hurricane models this year. “We do anticipate growth in 2012,” he said.

Last year, AIG sold $450 million in catastrophe bonds at a mix of 7.25 and 6 percentage points above the quarterly Treasury bills as the strongest hurricanes in the Atlantic missed the U.S.

Swiss Reinsurance Co. obtained $130 million of North Atlantic hurricane and European windstorm coverage earlier this month.

--Editors: Dan Reichl, William Ahearn

To contact the reporter on this story: Maryellen Tighe in New York at mtighe6@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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