Swiss Re has entered into a transaction with Redwood Capital XI Ltd., a Cayman Islands exempted company financed through the offering of insurance-linked securities, to receive up to $150 million in the event of a California earthquake in the covered area that meets specific “trigger criteria”.
Swiss Re said the transaction covers a one-year risk period ending on December 31, 2010. Redwood XI has in turn hedged the risk by issuing catastrophe bonds into the capital markets. As a “special purpose vehicle with a flexible program structure,” it can also issue further notes.
Swiss Re noted that it “has a strong track record of securitizing California earthquake risk, obtaining over $2.1 billion of protection through prior Redwood programs since 2001.” Last month the reinsurer entered into another $150 million securitization with Cayman Islands based Successor X Ltd. [See IJ web site – https://www.insurancejournal.com/news/international/2009/12/03/105689.htm], which also included earthquake coverage.
Swiss Re’s Chief Underwriting Officer, Brian Gray, commented: “Swiss Re has developed a leading market position as a sponsor, underwriter and innovation leader. Our ILS [Insurance Linked Securities] expertise is part of our core offering to our clients and a fundamental piece of our own hedging strategy.”
On the technical side, Swiss Re noted: “The Redwood XI offering consists of one series of notes, rated “B1″ by Moody’s. Swiss Re Capital Markets acted as sole manager and book runner on the note issuance. The collateral for this issuance of Redwood XI notes consists of treasury money market funds. Risk modeling and analysis was performed by EQECAT, Inc.”
Gray also pointed out that the “ILS market gained considerable momentum in 2009. More conservative collateral structures, price convergence with the reinsurance market, and the underlying value of diversification should further accelerate the ILS market in 2010.”
Source: Swiss Re – www.swissre.com
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