Reinsurer Swiss Re intends to issue the world’s first catastrophe bonds, giving investors exposure to flood risk, by the end of March.Rating agency Standard and Poor’s has rated a single $150 million tranche of notes at BB+. They will offer exposure to earthquake risk in the US (except California) and Canada, as well as river flood risk in Great Britain. Repayment of principal will be tied to losses on a notional portfolio of exposures following an earthquake in north America and an index of measured river flood depths in Britain. Portfolio loss modelling and index administration will be provided by California-based catastrophe-risk specialist Risk Management Solutions (RMS).
The river flood index has at least 50 weighted reference locations across the UK. Losses due will accrue once a minimum of four of these locations experience severe flood warnings lasting a day or more during a period of 12 consecutive days. Location weightings in the flood index, as well as the notional portfolio of earthquake exposures, may also be annually adjusted by Swiss Re to better match its own liabilities.
The notes have a legal maturity of July 2012. They are designed to hedge risks reinsured by Swiss Re for Munich-based insurance group Allianz.
More on Structured Products
Product born in 1990s Japan's low yield environment set for global stage
Strict classification of structured products into 'complex' and 'non-complex' criticised
HNWs got burnt in the Lehman crisis and are still cautious over exposures
Lobby effort targets proposed concentration limits on collateral for non-cleared derivatives
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.