Swiss Re, Allianz, RMS Team-up to Write UK, US, Canada Cat Bonds

Swiss Re announced its successful participation in structuring and placing $150 million of securities covering flood and earthquake catastrophic events in Great Britain, Canada and the United States on behalf of Allianz.

The reinsurer’s bulletin notes that the multiperil issuance bonds are “part of a $1 billion program, which provides protection against high severity losses incurred from earthquakes in Canada or the United States (excluding California) and river floods in Great Britain.”

The notes were officially offered by Blue Wings Ltd., a Cayman Islands Special Purpose Vehicle (SPV). The offer closed on April 3. “Blue Wings is the first insurance linked securities program to provide cover against flood. In case of a natural catastrophic event of the perils defined, the program would pay a claim based on pre-defined parameters and calculated by the risk modeling company Risk Management Solutions (RMS),” said Swiss Re.

Fathia Grandjean, director of the Continental Europe Industry Practice at RMS, indicated that this “new and innovative transaction marks an important step for the market, with risk based on new perils such as flood being securitized. Prior to this transaction, RMS designed the first solutions for a number of new perils, including the first ever Europe wind transaction, weather risk, and terrorism risk securitizations. The Blue Wings Ltd. deal is the latest step in our commitment to providing innovative solutions for the capital markets.”

Allianz explained that Blue Wings was established “for the benefit of Allianz Group through its corporate insurance arm, Allianz Global Corporate & Specialty. The securities offer bondholders a return of 3.15 percent over LIBOR. S&P has assigned its ‘BB+’ rating to the securities.”

“We are thrilled to launch this tranche, the first part of a $1 billion program that can be expanded to cover other risks,” noted Axel Theis, CEO at Allianz Global Corporate & Specialty. “This is a flexible tool and an important step in risk transfer mechanisms of the future enabling us to manage and optimize our exposure to catastrophic events.”

Allianz further explained that “this cat bond holds two risks: first, earthquake in Canada and the US excluding California, using a “modeled loss” trigger and second, river flood in Great Britain using a second generation parametric index trigger, the innovative part of the project.

“The index for flood is based on flood depths that will be calculated in more than fifty locations across Great Britain and was developed with the technology of RMS. As part of the post event process, Halcrow Group, a British engineering company, will provide the information necessary for the index calculation, the ultimate value of which will determine whether or not investors are losing part of their investment.”

Amer Ahmed, CRO at Allianz Global Corporate & Specialty commented: “For river flood we have developed a robust index which has been welcomed by investors as it provides a transparent and objective mechanism. It enables us to limit the basis risk without restricting our portfolio.”