here the article from the Sydney Morning Herald:
Swiss Re offers catastrophe bond
By Rhys Haynes
February 7, 2006
SYDNEY is the Australian capital city most at risk of an earthquake,
while Brisbane and Townsville are the most likely to be hit by a
cyclone, according to a global insurance company.
Swiss Reinsurance Co yesterday launched Australia's first ever natural
catastrophe bond as a way of insuring against major disasters.
The bond offers local capital markets $US100 million ($133.8 million)
worth of protection against Australian earthquake and tropical cyclone
risk.
"How real are the risk exposures covered by this capital?" asked Swiss
Re's head of Australasian property and casualty business, Keith Scott.
"Very real," he said.
"They are very remote occurrences, we expect maybe - in terms of
frequency - that this 'cat' bond would not be exposed to loss more than
twice in 100 years.
"They are very large events when they occur and they are very
infrequent."
Mr Scott said most of Australia's capital cities were at risk of an
earthquake, some of them more than others.
"The biggest [risk] is Sydney," he said. "I'm not scaremongering here,
I'm not saying we are anticipating an earthquake - we are not - but you
cannot discount [it]." Mr Scott said the cyclone risk in Australia was
also greatest on the east coast, with Brisbane and Townsville the most
exposed.
The bond, titled Australis Ltd, has a three-year life span.
Insurance-linked securities transfer insurance risk into the capital
markets by packaging up a particular type of risk such as an
earthquake, a hurricane or a human disease pandemic into an investment
vehicle bought by institutional investors.
If the event covered by the linked securities does not occur, investors
receive their capital back with interest. If it does, investors may
lose some of their interest and/or their principal in the investment.
Swiss Re, which insures insurance companies around the world, said it
was a way of helping insure against disasters that could cost tens of
billions of dollars.