Brit enters three-year cat swap deal

Brit Insurance Limited (BIL) has entered a three-year catastrophe swap contract with Fremantle, a Cayman Islands exempted company, that would pay BIL up to $200m in the event of four to nine qualifying natural catastrophes.

Fremantle will pay BIL $40m for each of the 4th and 5th events and $30m for each of the 6th to 9th events. The first three events are excluded.

Fremantle was formed solely for issuing loan notes underpinning a catastrophe swap programme. In its first issue Fremantle has raised $200m by the issue of three-year Principal At-Risk Variable Rate Notes, maturing June 2010 and divided into Classes A, B and C. The proceeds from the notes secure Fremantle's obligations under the catastrophe swap contract with BIL.

“this gives us a multi year, multi event hedge, which is cash collateralised and provides enhanced capital efficiency for Brit Insurance

Dane Douetil, group chief executive of Brit Insurance Holdings

Dane Douetil, group chief executive of Brit Insurance Holdings, said: “As stated in our 2006 report and accounts, we believe that the market for Insurance Linked Securities is now beginning to mature; our involvement with Fremantle is an excellent example. This innovation increases the range of options at our disposal in our asset liability management toolkit and reduces our dependence on traditional reinsurance solutions.”

While describing the swap as “relatively small” Douetil believes the move not only opens up greater access to the capital markets, but offers a structure “which we consider to be attractive compared with traditional products”.

“In particular,” he said, “this gives us a multi year, multi event hedge, which is cash collateralised and provides enhanced capital efficiency for Brit Insurance.”