In the first single-peril securitization of Japanese earthquake risk since 1999, Nissay Dow General Insurance recently launched Fujiyama Ltd., a catastrophe bond providing collateralised protection against earthquake losses in both Tokyo and the Tokai region.

The transaction will provide three years of risk protection for Nissay and will allow the company to tap the capital markets for reinsurance coverage.

Fujiyama will be the first of its kind to cover both Tokyo and the Tokai region simultaneously. According to a source close to the deal, insurers are expanding their exposure to the Tokai region, as the likelihood of an earthquake in this area is greater than in the metropolitan area.

Swiss Re Capital structured the deal and Risk Management Solutions worked with its Japanese joint venture partner, OYO RMS, to perform the analysis on the deal. Nissay Dowa obtained reinsurance from Swiss Re, which transferred the risk to Fujiyama, a Cayman Islands special purpose company. Fujiyama issued $70 million in bonds, bought by U.S. and European investors. Standard & Poor's rated the $67.9 million notes BB+' and it priced at 400 basis points over Libor, while the $2.1 million BB' class priced at 700 basis points over Libor.

Tokyo Marine and Mitsui Marine also completed earthquake risk transactions in 1997 and 1998, consecutively, and like Nissay, both are non-life insurers.

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