DCR Comments on Insurance-Linked Securitization

The market for insurance-linked securitizations continued to grow in 1999. The growth was at a pace slower than anticipated according to Duff & Phelps Credit Rating Co.

DCR rated six transactions in 1999, totaling approximately $400 million, compared to 1998’s two transactions totaling approximately $500 million.

The market showed several significant trends, such as increased participation by international sponsors, which included the first-ever non-insurance company issuer. The types of risks being securitized continued to broaden, including more international perils such as Japanese typhoon and European windstorm risk in addition to the more frequently seen U.S. hurricane and earthquake and Japanese earthquake risk. One highlight of the year was the completion of the first-ever weather-linked securitization.

Market forces driving sponsors to consider securitization include diversifying the sources of capital to support their business. This reduces their reliance on the often cyclical and volatile reinsurance market. Sponsors can also lock in high credit quality and multiyear reinsurance at rates favorable to those available in the traditional reinsurance market.

Several weather-related events prompted Rating Watch action on two DCR-rated securities. Mosaic Re II notes were placed on Rating Watch-Down due to potential losses from Hurricane Floyd and were removed from Rating Watch status when it became clear that the losses were not severe enough to impact investors.

Halyard Re notes were placed on Rating Watch-Down due to potential losses from European windstorms Lothar and Martin and remain on Rating Watch status pending the development of loss estimates.

Topics Catastrophe