Catlin Seals $150 Cat Bond Purchase; Willis Advised on Deal

February 22, 2008

The Bermuda-based Catlin Group Limited has purchased a collateralized US$150 million annual aggregate reinsurance contract to protect the Group’s portfolio of property treaty reinsurance against accumulated losses from specific perils.

The bulletin described the transaction as “unusual, as it provides retrocessional ‘catastrophe bond’ type coverage for a diverse portfolio of property catastrophe exposures on an indemnity basis. As it would be triggered by Catlin’s actual losses, it reduces the basis risk present in most index-based or parametric-based catastrophe bond products.”

The coverage from the bonds, which expires December 31, 2010, would be triggered if “Catlin’s losses from defined US windstorms and earthquakes, European windstorms, and Japanese windstorms and earthquakes exceed an annual aggregate threshold amount.” The coverage is complementary to previous securitizations purchased by Catlin in 2006 and 2007 as well as more traditional reinsurance coverage. The agreement is the third insurance-linked securities transaction in which Catlin has participated.

Catlin entered into a reinsurance agreement with Newton Re Limited, a special purpose reinsurer [i.e. a sidecar] established in the Cayman Islands, to issue the bonds. Newton Re in turn issued $150 million of principal at-risk variable rate notes, the proceeds of which will be used to provide collateral for Newton Re’s obligations to Catlin under the reinsurance agreement.

Willis Capital Markets, a business division of Willis Group Holdings Limited, acted as Co-Lead Manager of the offering. Mark Hvidsten, CEO, Willis Capital Markets, described the transaction as “highly innovative,” in providing “multi-year aggregate excess of loss protection of a reinsurance account.” He indicated that this type of risk, which is quite complex, “can be more efficiently absorbed in the catastrophe bond market than by traditional reinsurance capital.

“Careful and sophisticated structuring has resulted in a transaction that enables investors to support the deal, while providing Catlin with economic and rating agency capital efficiencies,” Hvidsten added. “The cover is perhaps the broadest protection of a reinsurance account yet seen in the catastrophe bond market.”

A.M. Best has assigned a debt rating of “bb” to the notes with a stable outlook. Standard & Poor’s rated them ‘BB’.

Catlin said it has preformed the risk analysis related to the transaction and “will also perform similar analyses during the subsequent years of the agreement. Risk Management Solutions Inc. has and will continue to review the analysis provided by Catlin.”

Chief Executive Stephen Catlin commented: “Our latest innovative transaction with Newton Re protects the Group’s treaty reinsurance portfolio against both severe catastrophic events and a series of smaller events. This fully collateralized coverage provides Catlin with economical, fixed-price protection until the end of 2010. The transaction, which fully complements our previous securitized reinsurance arrangements and our traditional reinsurance program, further increases the security that Catlin provides to its policyholders and investors.”

Sources: Catlin –; Willis –