1. Introduction

　　　The first catastrophe bond focusing on residential earthquake insurance successfully issues on Aug. 25th,
　　　2003. Because of this fact, Taiwan becomes the Asian country issuing such bond second to Japan. Such
　　　success creates a new leaf and set up a milestone for the domestic financial and insurance industry. Duration
　　　of catastrophe bond is from Aug. 25th, 2003 to Jun. 30th, 2006, and is amount to 100 million dollars. The
　　　purpose of issuing such bond is to make a connection between insurance and capital markets. With such
　　　purpose, capital market may effectively share the earthquake risk shouldered by insurance industry.

 

2.Sturcuture

 

3.Interpretation

(1)　Central Reinsurance Company is in charge of catastrophe bond, which is extended from the task of
　　　　residential earthquake insurance. Central Reinsurance Company has singed a reinsurance contract with
　　　　Formosa Re Ltd, and to pay for premium according to the insurance contract.

(2)　Investors pay for catastrophe bond while Formosa Re Ltd. will pay for regular interests.

(3)　After receiving capital from investors, money will be deposited into trust fund. Interests are regularly
　　　　earned by trust fund.

(4)　In order to pay for floating interest, Formosa Re Ltd. usually does interest swap on currency market.
　　　　LIBOR is exchanged through the return earned from short-term investment in order to lower the risk
　　　　arisen from bond issue.