Risk Management Solutions has designed the trigger mechanisms and performed the risk analysis for a securitization of multi-peril, multi-event catastrophe risk relating to securities issued by Fremantle Ltd, a Cayman Islands SPV [Special Purpose Vehicle – aka sidecar].
The, securities provide $200 million of collateralized multi-event cover for Brit Insurance Limited, a subsidiary of Brit Insurance Holdings PLC for three years, as part of a program structured and placed by ABN-AMRO. The covered perils include U.S. earthquake and hurricane risk, Japan earthquake and typhoon risk, and European windstorm risk.
“The catastrophe swap would be triggered for U.S. events if aggregate insurance industry losses as estimated by Property Claims Services (PCS) exceed defined threshold amounts,” RMS explained.
“Japan and Europe events would trigger if specific parametric criteria, such as wind speeds or ground motions, are met or exceeded,” the bulletin continued. “RMS designed the triggers and analyzed the probabilities of exceedance in conjunction with structuring work performed by Guy Carpenter & Company Ltd.
“This deal is a great example of how innovative trigger and deal structuring can bring tailored protection to the sponsor, while remaining transparent enough for investors to understand,” noted Peter Nakada, managing director of RMS Consulting. “Furthermore, tranching the deal opens up the market to investors that want investment-grade exposure to catastrophe risk.”
In a bulletin on its web site, Geoff Bromley, Guy Carpenter’s Chairman of European and Asian operations, noted the broker’s contribution to “bringing this transaction to market with ABN AMRO.” He also indicated that this was the second such offering and similar transactions are planned for the future. He described Brit as one of several “market-leading companies” that are continuing “to seek more sophisticated and cost-efficient asset liability management solutions.”
In a separate bulletin on the Brit web site (http://investor.britinsurance.com.) the Group’s Chief Executive Dane Douetil indicated that the Fremantle notes form part of Brit’s commitment to the “market for Insurance Linked Securities,” which “is now beginning to mature.” He added that “this innovation increases the range of options at our disposal in our asset liability management toolkit and reduces our dependence on traditional reinsurance solutions.
“Although this is a relatively small part of our overall catastrophe hedging program, it widens our access to the capital markets while offering structural features which we consider to be attractive compared with traditional products. In particular this gives us a multi year, multi event hedge, which is cash collateralized and provides enhanced capital efficiency for Brit Insurance.” He added that the notes had been oversubscribed.
Topics Catastrophe Europe
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