Swiss Re Obtains Cat Bond Protection For Calif. Quakes

NU Online News Service, Jan. 6, 11:13 a.m. EST

Swiss Re has obtained $150 million in catastrophe bond protection against the risk of a California earthquake, the company announced.

The Zurich-based company said it entered into a transaction with Redwood Capital XI Ltd. to receive up to $150 million of payments in the event of a California earthquake in the covered area that meets specific trigger criteria. The transaction covers a one-year risk period ending Dec. 30, Swiss Re said.

In turn, Swiss Re said Redwood XI--a special purpose vehicle with a flexible program structure that will allow subsequent issuances of notes--has hedged the risk by issuing catastrophe bonds into the capital markets.

Swiss Re said it has obtained over $2.1 billion of California earthquake protection through prior Redwood programs since 2001.

This current Redwood XI offering consists of one series of notes, rated "B1" (poor) by Moody's, Swiss Re said. Swiss Re Capital Markets acted as sole manager and book-runner on the note issuance, the company added, and the collateral for the issuance of Redwood XI notes consists of treasury money market funds.

Swiss Re's chief underwriting officer, Brian Gray, said, "The ILS [insurance linked securities] market gained considerable momentum in 2009. More conservative collateral structures, price convergence with the reinsurance market and the underlying value of diversification should further accelerate the ILS market in 2010."

Early in Dec. 2009, Swiss Re obtained $150 million in cat bond protection for North Atlantic hurricane, European windstorm and California earthquake events. Alayna Francis, Swiss Re spokesperson, said the current transaction differs from the December one as that one was multiperil and this recent one is single-peril--specific to Calif. earthquakes only.