Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, plans to sell bonds linked to earthquake risk to tap demand from investors seeking higher returns and from companies to hedge the cost of potential damage.
Mitsubishi UFJ Securities Co. will sell Japanese companies contracts that protect against losses from earthquakes, said Yusaku Manabe, a deputy general manager at the investment bank's products and solutions division. It will then sell so-called catastrophe bonds backed by those contracts to overseas investors.
Japan, one of the world's most earthquake-prone countries, is located in a zone where the Eurasian, Pacific, Philippine and North American tectonic plates meet.
Japanese companies can contract to protect against damage to facilities and revenue declines caused by earthquakes using the new product, Manabe said. The greater the probability of an earthquake, the higher the premium buyers will pay, he said.
The nation's biggest recent quake killed 11 and injured more than 1,000 on July 16 in Niigata Prefecture. Damage from the magnitude-6.8 temblor forced Tokyo Electric Power Co. to shut down its biggest nuclear power plant. A quake near the same area in 2004 killed 33 people. Manabe declined to disclose the timing or scale of the initial bond sale because the securities will be placed privately.