Farmers Acquires Right to Use Subordinated Notes for Severe Cat Losses

Farmers Insurance Group has entered into a committed capital facility providing the company the right to issue $500 million of regulatory capital to cover catastrophic losses over the next five years in the United States. The committed capital is a committment from high-credit quality financial institutions to purchase regulatory capital should a pre-defined event occur and the insurer exercises its options to issue surplus notes at pre-agreed terms and conditions, the company said.

The facility was arranged by Swiss Re Capital Markets, and is a structure developed by the reinsurance industry to use capital markets in financing catastrophic losses.

Under the transaction, if Farmers suffers severe windstorm losses in excess of $1.5 billion in states such as Texas, Arkansas, Oklahoma or Louisiana, it has the right to issue 10-year subordinated loan notes to major institutions to restore its capital base. The $500 million has been underwritten by Caylon, Commerzbank, Citigroup and Swiss Re, and has been syndicated to the world’s major commercial banks. The transactio nwas completed July 10, 2007, after being syndicated to international banks.

Farmers, headquartered in Los Angeles, is a subsidiary of Zurich Financial Services Group.

Source: Farmers

Topics Mergers & Acquisitions Profit Loss Agribusiness