Filed Under:Markets, Reinsurance

Swiss Re Introduces Dual-Company Risk to Capital Markets

NU Online News Service, March 28, 1:25 p.m. EDT

Zurich-based reinsurer Swiss Re says its subsidiary Swiss Re Capital Markets has placed a $200 million insurance-linked security with the capital markets that has the unique feature of covering the reinsurance exposures of two carriers.

Announced earlier this week, the multi-peril catastrophe risk vehicle named Combine Re incorporates the risk of reinsured parties COUNTRY Mutual Insurance Company of Bloomington, Ill., and North Carolina Farm Bureau Mutual Insurance Company, Inc., of Raleigh, N.C.

The bonds cover damage from severe weather including thunderstorms, hurricanes, earthquakes and winter storms in the United States.

“Because the two companies are geographically diverse, by aggregating their risk we were able to come up with three classes of notes all offering different risk and return profits,” says Richard Pennay, a senior vice president of Swiss Re. “By doing that, we were able to attract a broader investor base.”

The retrocession transaction involved three tranches, combining $100 million of Class A notes rated “Baa1” by Moody’s, $50 million “Ba3” rated Class B notes, and $50 million of riskier, unrated Class C notes.

Catastrophe modeler AIR Worldwide provided risk analysis for the notes.

Having helped spearhead the innovative bond, Pennay says that aggregating the risks allows the companies to halve their startup costs, and although it enhanced the cost of coverage for both parties, the bond did not increase potential loss for investors.

“It’s a big step forward in providing smaller insurance companies throughout the U.S. access to catastrophe bonds,” says Pennay.

“What we are seeking to do is reinsure companies for periods of high [loss] frequency and sustain losses from natural catastrophes similar to the types of events that took place in 2011,” that include the series of severe, destructive thunderstorms and Hurricane Irene striking the East coast,” says Pennay.   

Earlier this year, Munich Re offered a catastrophe bond worth $75 million through Bermuda’s Queen Street V Re Ltd. for hurricane and wind exposure in the United States and Europe. This bond was rated “B-plus” by Standard & Poor's. 

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