Swiss Re Sponsors $100 Million Mediterranean Earthquake Risk Bond

Swiss Re announced that it has obtained $100 million of protection against earthquake risk in Turkey, Greece, Israel, Portugal and Cyprus through a securitization – the first time the capital markets have been tapped to cover this type of risk in those countries.

Martin Bisping, Head of Retro and Syndication at Swiss Re, commented: “This transaction allows Swiss Re to continue meeting the Mediterranean market’s increased demand for capital, and supports Swiss Re’s strategic goals of reducing earnings volatility through active risk management and generating economic profit growth through efficient capital allocation.”

The transaction consists of a retrocession agreement between Swiss Re and MedQuake Ltd., which will issue $100 million of principal at-risk variable rate notes for this purpose. The notes cover severe earthquake risk in the countries from May 2007 through May 2010 and are based on a parametric index trigger.

Swiss Re noted that “a parametric index trigger is a more refined version of the pure parametric trigger using complicated formulae and more detailed measuring locations. The weights of these locations are usually chosen to limit the sponsor’s exposure basis risk.”

The bonds are divided into two classes – “A” and “B,” each for $50 million. The “A” bonds have been rated at “BB-‘ and pay interest of 355 basis points on three month LIBOR average. The “B” bonds are rated “B” and pay 510 basis points in interest.

All of the bonds have been privately placed.