NU Online News Service, March 29, 3:52 p.m. EDT
Swiss Re said it has arranged for an additional $120 million in catastrophe bond protection using windstorm loss estimates from the new PERILS European data aggregator.
Coverage, the firm said, is for North Atlantic hurricane, European windstorm, California earthquake and Japan earthquake losses and is the first cat bond transaction issued using a windstorm index based on PERILS industry data.
The reinsurer said it has entered into a transaction with Successor X Ltd. to receive up to $120 million of payments in the event of natural catastrophes.
Under the transaction a three-year covered risk period ends March 2013. Successor X, in turn, has issued notes linked to this risk to the capital markets. Successor X is a special purpose vehicle with a flexible program structure, which will allow subsequent issuances of notes.
Swiss Re noted it has a strong track record of securitizing its natural catastrophe risks, obtaining more than $1.6 billion of protection through prior Successor programs. The current Successor X program, with the first bond issued in December, securitizes an additional $270 million for the company.
Brian Gray, Swiss Re’s chief underwriting officer, explained this is the first cat bond transaction issued using a European windstorm index based on industry loss estimates from PERILS, which was formed last year.
PERILS is an insurance industry initiative aimed at improving the availability of catastrophe insurance market data. According to its Web site, PERILS’ industry data are based on information exclusively received from insurers writing business in the territories covered by PERILS.
PERILS founding shareholders include: Allianz, AXA, Groupama, Guy Carpenter, Munich Re, PartnerRe, Swiss Re and Zurich. Each company holds equal equity in PERILS.
“Swiss Re welcomes this independent industry initiative and sees it as an important step toward more efficient and transparent risk transfer in Europe,” Mr. Gray said. “We have supported PERILS from the very beginning, and this demonstrates our continued commitment to driving innovation in the ILS [insurance-linked securities] sector.”
The triggers for the other perils covered by the new bond are based on parametric indices or modeled losses, said Swiss Re.
Successor’s offering consists of three series of notes of $35 million, $40 million and $45 million each. One class of the notes is rated “B-minus” by Standard & Poor’s, while the other classes are not rated. The collateral for this issuance of Successor X notes consists of Treasury money market funds, Swiss Re said.
Swiss Re Capital Markets acted as sole manager and bookrunner on the note issuance. Risk modeling and analysis were performed by EQECAT Inc.
Martin Bisping, head of Non-Life Risk Transformation, said that “Swiss Re employs the same rigid structuring processes and deep level of natural catastrophe expertise to minimize basis risk and create innovative risk transformation solutions for ourselves as we do for our clients. Managing complexity, basis risk and tail risk is part of our competitive advantage.”
The Successor X notes were sold in a private placement.