The innovative feature of the CAT Bond consists of easily ascertainable parametric triggers for the three geographic regions covered by the transaction.”For the San Francisco Bay Area and Greater Los Angeles, the triggers are based on reported earthquake magnitude within twelve geographical ‘boxes’ surrounding sources of major tectonic activity. The European windstorm trigger is an index calculated from windspeeds at 600 measuring stations across five countries in Western Europe,” RMS stated.
Investors and potential investors are therefore better able to gauge the risks involved and to receive prior warning of any imminent payouts on the bonds, which in turn should make them a more attractive investment.
Apparently the rating agencies think so too. The bonds, subdivided into $50 million in “Class A Notes” are rated A by S&P, and A3 by Moody’s, while $100 million in “Class B notes” were rated BB+ by S&P and Ba2 by Moody’s. According to RMS the Class A notes are the first securitization ever to be accorded an A rating.
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