$87.5m for severe US earthquake and $137.5m for severe US hurricane
Catlin Group Limited, the international specialty property/casualty insurer and reinsurer, announces that Catlin Insurance Company Ltd. of Bermuda (‘Catlin Bermuda’) has purchased coverage totalling US$225 million under a catastrophe swap agreement in the event of severe US natural catastrophes over a three-year period.
According to Catlin, the transaction provides competitively priced and fully collateralised protection amounting to US$87.5 million in the event of a severe US earthquake and US$137.5 million in the event of a severe US hurricane.
The coverage complements the catastrophe protection that Catlin purchases through the commercial reinsurance market as well as the three-year catastrophe swap agreement that Catlin Bermuda completed in November 2006.
In the transaction, which was completed 17 December, Catlin Bermuda has entered into a risk transfer agreement with Newton Re Limited, a special purpose reinsurer established in the Cayman Islands. The structure of Newton Re will enable Catlin to access the capital markets for further risk transfer transactions quickly and efficiently.
Newton Re in turn has issued US$225 million of three-year principal at-risk variable rate notes in two classes, the proceeds of which will be used to provide collateral for Newton Re’s obligations to Catlin Bermuda under the risk transfer agreement. The Class A Notes, in the principal amount of US$87.5 million, are exposed to US earthquake events, whilst the Class B Notes, in the principal amount of US$137.5 million, are exposed to US hurricane events.
Catlin will make recoveries under the catastrophe swap agreement in the event of a US earthquake or hurricane whose losses exceed a threshold amount. The threshold is determined by the application of a pre-determined formula with respect to insurance industry losses reported by Property Claims Service, a division of ISO Services Inc.
Stephen Catlin, chief executive of Catlin Group Limited, said: “I am pleased to announce that Catlin has participated in another innovative transaction that will provide the Group with protection in the event of a severe earthquake or hurricane striking the United States. This transaction further strengthens Catlin’s ability to withstand claims from natural catastrophes and increases the security that Catlin provides both to its policyholders and its investors. The transaction provides Catlin with fixed-price protection for a three-year period, whilst mitigating the credit and dispute risks that are inherent in conventional reinsurance transactions.”
These securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons except in accordance with the resale restrictions applicable thereto. These securities having been previously sold, this announcement appears as a matter of record only.
The Newton Re transaction is the second insurance-linked securities transaction in which Catlin has participated. In November 2006 Catlin Bermuda entered into a catastrophe swap agreement with Bay Haven Limited, a Cayman special purpose vehicle, that would respond to a wide range of covered risk events during a three-year period. No payment would be made for the first three such risk events, but Catlin Bermuda would receive US$33.375 million per covered risk event thereafter, up to a maximum of six events. Catlin Bermuda subsequently entered into further catastrophe swap agreements that would provide US$56.5 million in coverage in response to the third covered risk event.