Swiss Re launches $2 billion catastrophe securitisation programme
Swiss Re Capital Markets has begun marketing a $225 million catastrophe bond offering, the first part of a $2 billion programme, that securitises Swiss Re’s reinsurance exposure to five types of earthquake and hurricane risk.
A sixth $50 million class is based on all the perils together. This class pays out to Swiss Re with the first occurrence of any one peril in the basket at a level of severity higher than in the peril’s single-class form.
Pioneer is unique because it addresses a catastrophe securities market shortfall in which large issues based on one risk, say $500 million on US hurricane risk, dominate the market at the time of their issue. This dominance widens the spread an issuer has to pay due to the lack of diversification potential for investors elsewhere in the small, fairly illiquid catastrophe risk market. “The way it’s been in the past with the lumpiness of issuance is that people have been unable to buy a whole lot of them at a tight price, because there’s nothing to diversify it against,” said an investor familiar with the deal. This is especially frustrating to investors whose mandates require specified levels of catastrophe risk portfolio diversification or who are prevented from rebalancing their portfolios by trading in the secondary markets for catastrophe risk, said the investor.
By the terms of the deal, Swiss Re Capital Markets may issue more securities within any of the structure’s six catastrophe risk classes at quarterly intervals up to a final total of $2 billion. By allowing several risks to be issued together on a regular basis, Pioneer allows investors to build their portfolios in a diversified manner. Issuance will be determined by market demand, gauged in part by pricing for a previous quarter’s Pioneer issue.
According to the investor, five classes will be rated BB+, while the central US earthquake class is expected to be BBB-. Swiss Re Capital Markets is not committed to issue any future securities under Pioneer in any one of the perils. For example, all the remaining issues could be in the North Atlantic hurricane risk class, though that would be unlikely, said the investor.
Swiss Re officials did not return calls by press time. Officials at Lehman Brothers, which is said to co-manager on the deal with Swiss Re Capital Markets, could not be reached by press time. An official at EQECAT, the Oakland, California-based insurance risk consulting firm, said to have modelled the deal, declined to comment.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FICC takes flak over Treasury clearing proposal
Latest plans would still allow members to bundle clearing and execution – and would fail to boost clearing capacity, critics say
Buy side would welcome more guidance on managing margin calls
FSB report calls for regulators to review existing standards for non-bank liquidity management
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
Benchmark switch leaves hedging headache for Philippine banks
If interest rates are cut before new benchmark docs are ready, banks face possible NII squeeze
Op risk data: Tech glitch gives customers unlimited funds
Also: Payback for slow Paycheck Protection payouts; SEC hits out at AI washing. Data by ORX News
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies