First Terror Bond Sale Opens New High-Yield Catastrophe Market

(Bloomberg) -- A U.K. reinsurer has sold the first terror catastrophe bond, giving investors the chance to lock in high yields in return for taking on terrorism risks.

The 75 million-pound ($99 million) three-year bond will pay 5.9 percent interest, state-backed Pool Re said in a statement. The notes were issued through a special-purpose company called Baltic PCC Ltd.

Modeled on Catastrophe bonds, the new notes will suffer losses if insurers have to pay out on terror attacks including chemical, biological or cyber. Catastrophe bonds, which pay out after natural disasters such as hurricanes or earthquakes, have found a market by offering investors a high-yield asset uncorrelated to economic or financial-market risks.

The Baltic PCC deal complements "traditional reinsurers to spread terrorism risk even more broadly,” Pool Re Chief Executive Officer Julian Enoizi said in the statement. “In addition, it further protects HM Treasury, and helps us towards our ultimate goal of returning terrorism risk to private markets.”

Pool Re was set up in 1993 after the Irish Republican Army’s mainland U.K. bombing campaign prompted reinsurers to stop covering terrorism-related damage.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Neil Denslow

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