Swiss Re Sets $150 Million In Cat Bond Protection

NU Online News Service, Dec.3, 1:34 p.m. EST

Swiss Re said it has obtained $150 million in catastrophe bond protection for North Atlantic hurricane, European windstorm and California earthquake events.

The Zurich-based firm said it has entered into a transaction with Successor X Ltd. ("Successor X") to receive up to $150 million for natural catastrophes with a focus on European windstorm exposure, hurricanes in the North Atlantic, and California earthquakes.

Coverage is for a one year risk period ending in late 2010, Swiss Re said.

Successor X, the insurer, 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, it added.

Swiss Re said it has a strong track record of securitizing its natural catastrophe risks, obtaining over $1.6 billion of protection through prior Successor programs.

Swiss Re's Chief Underwriting Officer, Brian Gray, commented: "Insurance-linked securities are a cornerstone of Swiss Re's hedging strategy. It helps us to manage peak natural catastrophe risk, lowers capital requirements and reduces earnings volatility."

The latest cat bond arrangement, he said, "increases our ability to assume risk from a broad spectrum of individual clients, and transform it to capital markets investors in a simple and standard format."

The Successor offering consists of three series of notes of $50 million each. One class of the notes is rated "B minus" by Standard & Poor's while the other classes were not rated.

All classes of notes were issued as discount notes. Instead of purchasing the note at 100 percent face value, investors purchased it at a discount and expect to receive 100 percent of the face value at maturity if no trigger event occurs. "This innovative feature allows for a more efficient use of the cash proceeds in the transaction," Swiss Re's statement said.

Swiss Re Capital Markets acted as sole manager and bookrunner on the note issuance. The collateral for this issuance of Successor X notes consists of treasury money market funds. Risk modeling and analysis was performed by Eqecat, Inc.