Zurich-based Swiss Re announced today that it has successfully placed the first catastrophe bond to be linked to Central American earthquakes.
The reinsurer said it has successfully structured and placed $85 million of securities covering earthquakes in Central America and California as well as windstorm events in the United States.
Swiss Re said the initial offering of notes by GlobeCat Ltd. closed Dec. 21, 2007, and the risk modeling company EQECAT Inc. is used as the calculation agent and for the initial risk analysis.
The company said that as part of an ongoing program, Swiss Re's Capital Markets structured and placed the securitization and acted as the sole book runner for the initial $85 million offering.
The first two tranches of the issuance cover losses due to catastrophic hurricanes and earthquakes in the United States and the third layer is the first to cover exposures in Central America.
Swiss Re said the GlobeCat Ltd. LAQ tranche covers the non-peak perils of Guatemala and El Salvador earthquakes. The trigger is the first of its kind in that the index is based on the population exposed to certain levels of ground-shaking intensity as measured by Modified Mercali Intensity scale.
The index is modeled after the PAGER system developed by the U.S. Geological Survey within the Global ShakeMap program, the reinsurer said.
Swiss Re explained that the goal of the GlobeCat Ltd securitization is to create a platform and a model in which charitable foundations, governmental relief organizations and corporations can leverage charitable donations or governmental/international funding to the benefit of developing nations affected by natural disasters.
The company explained such a program will help these organizations in becoming more proactive in planning and anticipating relief needs in areas of the world affected by severe catastrophes. Swiss Re said in case of a triggering event, the funds will be quickly available for relief efforts rather than being raised post-event.
According to Swiss Re GlobeCat Securitization has shown that this concept is viable and that donation to coverage leverage can be as high as 45 times. ($1 million of donations can be used for $45 million in relief). The company said other triggers are being developed for a wide variety of disasters.
Meanwhile, the reinsurer also announced it has moved its carbon emissions desk from New York to London and hired additional staff to accommodate recent growth in the carbon markets.
Since 2006, Swiss Re has issued an insurance product for managing Kyoto Protocol-related risks in carbon credit transactions.
"London has become the epicenter for carbon markets due to the presence of key players and proximity to many of the affected installations. With the new desk we will be better positioned to serve our worldwide client base," explained Ben Lashkari, head of emissions at Swiss Re's Environmental and Commodity Markets.
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