AGF/IART, a unit of AGF the French arm of Germany’s Allianz, will issue natural catastrophe securities covering windstorm damages in France and earthquake risks in Europe through Mediterranean Re, a special purpose vehicle.
Prompted by last year’s heavy windstorm losses, the notes will cover potential claims over the next 5 years. This marks the first time that a French insurer has used an alternative risk transfer to cover these specific risks.
The cat bonds will be placed through Goldman Sachs with 129 institutional investors in two “tranches;” the first for $41 million with interest at Libor + 560 basis points, and the second for $88 million with interest at Libor + 585 basis points. The maturity date is November 18, 2005 for both issues.
The current Libor rate for U.S. Dollars is around 6.67 percent, and as each basis point is 1/100th of a percent, the bonds offer a very substantial premium to the investors, with interest levels above 12 percent. This undoubtedly reflects the risk involved in ART financing. If France experiences another storm of the same magnitude as last year’s, the entire amount of the capital could be at risk.
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