Centre Solutions (Bermuda) Ltd. has issued $56.6 million in catastrophe bonds to protect the company's bottom line against hurricane losses in Florida.

More and more companies are looking at insurance securitisation, the melding of insurance with financial products, as a means of spreading risk to investors.

The new deal is a successor to the securitisation the company completed in March 1998 through the formation of Trinity Re, Ltd. As in the previous deal Centre Solutions has created a special purpose reinsurer called Trinity Re 1999 and through the company purchased retrocessional capacity against Florida hurricanes from capital markets investors.

The investors have indirectly assumed a portion of Centre Solutions exposure to hurricane losses under a reinsurance contract written to cover a book of Florida residential property insurance.

Centre Solutions is a member of the Zurich Financial Services Group.

"Centre Solutions and the Zurich Financial Services Group continue to view securitisation as an important strategic capability,'' Centre Solutions chief executive officer David Wasserman stated in a press release. "These transactions allow Centre Solutions to develop and maintain a dialogue with investors and play an important role in the development of this asset class.'' The bonds have a layer of $5 million principal-protected securities, and $51.6 million in which the principal is at risk. Loss of principal on the bond is triggered when Centre Solutions incurs losses as a direct result of a hurricane under an excess of loss reinsurance policy the company has written to a Florida residential property insurer.

Under a reset mechanism the features of the bond may be changed following a hurricane loss.

"The reset mechanism limits the level of risk assumed by investors while providing some flexibility to the insurer to grow and otherwise change the underlying book of Florida residential insurance policies,'' the company stated.

Last year Centre Solutions issued $83.5 million in catastrophe bonds through Trinity Re, a special purpose vehicle incorporated in the Cayman Islands. The name symbolises the partnership between the insurance, reinsurance and capital markets.

Those initial bonds reached maturity on December 31. Centre Solutions is attempting to set up a permanent channel to access capacity from the capital markets which it believes will work out cheaper than reinsurance over the long term.

Catastrophe bonds aim to securitise large risks that are traditionally borne by insurers. The bonds are usually placed on one-off events such as hurricanes, tornadoes, or earthquakes.

The concept has been around since the start of the decade, however few deals have been completed due to low investor interest or a lack of understanding.

A.M. Best rating agency estimates US insurers have a total capital of about $260 billion, this is tiny compared to the trillions of dollars traded in the world's securities markets.

The Chicago Board of Trade began with options on risk futures in 1992. Last year the Bermuda Commodities Exchange was set up to use options for risks in the US. The aim, however, is to lure institutional investors such as pension funds, life insurers and large investment pools to the offerings.

The biggest catastrophe bond offering so far was placed by state-entity the California Earthquake Authority, which put one out for $1.5 billion last year.

The entire issue was bought by mega-investor Warren Buffett.