Sandy Could Cause Loss for Combine Re Cat Bond

Moody's Investors Service says Superstorm Sandy could, in a worst-case scenario, cause losses for the Combine Re catastrophe bond.

Combine Re is a $200 million indemnity cat bond issued by Swiss Re in March for the benefit of Country Mutual Insurance Co. and North Carolina Farm Bureau Mutual Insurance. Moody's says if losses end up being at the high end of current estimates, they will exceed the first loss layer that absorbs net losses before the rated tranches kick in.

“The property losses will cause Combine Re to use up additional protective subordination and, in the worst case, will result in losses on the cat bond,” says the ratings agency.

Moody's notes that the cat bond covers against several perils in specific regions of the U.S., including severe thunderstorms, hurricanes, earthquakes and winter storms, but it excludes hurricanes in Florida. 

As such, Moody's says the hybrid nature of Sandy could influence what type of covered event the storm will be: hurricane, severe storm or winter storm. “In the former case, losses owing to this event are subject to a $200 million hurricane per-event limit, while there is no limit for the latter cases,” says Moody's.