A Lloyd's of London syndicate managed by Hiscox is prepping its first earthquake risk catastrophe bond, according to a CAT bond professional in New York. "This is Lloyd's first CAT bond. It makes the deal quite interesting," the analyst added. The USD25 million CAT bond will securitize California and New Madrid, Mo., earthquake risk.
The single-tranche offering will have a three-year maturity and is expected to start pricing in two weeks. The offering will be sold through St. Agatha Re, a special purpose reinsurance vehicle in Bermuda. An official at Hiscox declined comment.
Investors start to lose their principle after losses from an earthquake exceed USD9.5 billion in California or USD12.5 billion in Missouri. It is higher in Missouri because the damage would be greater if there were an earthquake as the town and its buildings are not designed to withstand shock. The last earthquake in Missouri was in 1811, but forecasters are predicting there could be another in the next five years.