Catlin Participates In Innovative Natural Catastrophe Security
27 September 2006
HAMILTON, Bermuda – Catlin Group Limited (‘CGL’: London Stock Exchange), the international speciality property/casualty insurer and reinsurer, announces that Catlin Insurance Company Ltd. of Bermuda (‘Catlin Bermuda’) intends, subject to completion of contractual arrangements, to enter a catastrophe swap agreement that would provide it with coverage of up to US$200.25 million in the event of a series of severe natural catastrophes.
The innovative transaction would provide Catlin with competitively priced and fully collateralised protection against severe natural catastrophes. This transaction would complement the protection that Catlin already purchases through the traditional reinsurance marketplace.
The transaction, which is being brought to the securities market this week by ABN AMRO London, would be the first publicly rated collateralised debt obligation (‘CDO’) of natural catastrophe risk. The catastrophe bond is thought to be the first of its kind to offer very low-risk/low-volatility investors, such as pension funds and life insurers, the diversification and yield benefits of natural catastrophe exposure.
This new class of security has been developed in conjunction with Guy Carpenter & Company Inc., one of the world’s leading reinsurance brokers, and Risk Management Solutions Inc. (‘RMS’), the world’s leading provider of catastrophe modelling solutions.
Catlin Bermuda would purchase the catastrophe swap from a special purpose vehicle, Bay Haven Limited. Bay Haven would in turn issue to investors $200.25 million in three year Floating Rate Notes, divided into Class A and Class B Notes. The proceeds of those notes would comprise the collateral for Bay Haven’s obligations to Catlin Bermuda under the catastrophe swap.
Standard & Poor's Ratings Services is expected to assign a ‘AA’ senior secured debt rating to the Class A Notes and is expected to assign a ‘BBB-‘ senior secured debt rating to the Class B notes. This is expected to be the first transaction linked to natural peril risk to be rated ‘AA’ by Standard & Poor’s.
The catastrophe swap would respond to covered risk events occurring during a three year period. No payment would be made for the first three such risk events. Bay Haven would pay Catlin Bermuda US$33.375 million per covered risk event thereafter, up to a maximum of six events. The aggregate limit payable to Catlin Bermuda is $200.25 million.
The categories of risk events to be covered by the transaction are: US hurricanes (Florida, Gulf States and East Coast), Californian earthquakes, New Madrid (US Midwestern) earthquakes, UK windstorms, European (excluding UK) windstorms, Japanese typhoons and Japanese earthquakes.
Only one payment would be made for each covered risk event, but the catastrophe swap would respond to multiple occurrences of a given category of risk event, such as if more than one qualifying US hurricane occurs during the period.
The catastrophe swap would be triggered for US risk events if aggregate insurance industry losses as estimated by Property Claims Services (‘PCS’) meet or exceed defined threshold amounts. Coverage for non-US risk events would be triggered if specific parametric criteria, such as wind speeds or ground motions, are met or exceeded. The stochastic risk analyses, definitions of covered events and parametric trigger solutions have been developed by RMS.
The first two events paid under the catastrophe swap would impact the Class B notes; subsequent events, up to the limit of six events over the three year period, would impact the Class A Notes.
Stephen Catlin, chief executive of Catlin Group Limited, said:
“The pattern of natural catastrophes over the past several years has focused attention on how insurers and reinsurers will be able to respond to the increasing frequency and economic severity of these events. This transaction, when completed, will strengthen Catlin’s ability to withstand claims arising from a series of severe natural catastrophes. Along with the steps Catlin has already taken to limit its exposure to natural catastrophe risk, the catastrophe swap will increase the security that Catlin provides to both policyholders and investors.”
Erik Manning, Insurance & Weather Derivatives Group at ABN AMRO, said:
“For the first time, pension funds and other institutional investors will have the ability to invest in these near zero-beta investments, providing genuine investment portfolio diversity with the benefit of high investment grade ratings. Bay Haven has opened up the world of Insurance-Linked Securities to a whole new breed of investors.”
Tibor Winkler, director of risk markets at RMS, in London said:
“RMS is very pleased to have participated in the structuring and placement of this transaction of natural catastrophe insurance risk into a segment of the capital markets hitherto virtually untapped by this asset class. As part of our long term commitment to this asset class, RMS, the leading provider in this space, continues to work with the market for the success of new transactions like Bay Haven.”
- ends -
For more information contact:
|
Catlin Group Limited |
|
|
|
James Burcke, Head of Communications, London |
Tel: Mobile: |
+44 (0)20 7458 5710
|
|
Liz Morley, Maitland |
Tel: E-mail: |
+44 (0)20 7379 5151 emorley@maitland.co.uk |
|
Investor Relations: |
|
|
|
William Spurgin, |
Tel: E-mail: |
+44 (0)20 7458 5726 +44 (0)7710 314 365 |
|
ABN AMRO |
|
|
|
Jo Pope |
Tel: E-mail: |
+44 (0) 20 7678 5111 joanna.pope@uk.abnamro.com |
|
Guy Carpenter |
|
|
|
Jennifer Ainslie Head of UK Marketing & Communications |
Tel: E-mail: |
+44 (0) 20 7357 2058 jennifer.ainslie@guycarp.com |
Notes:
| 1. |
The Catlin Group, headquartered in Bermuda, is an international specialist property/casualty insurer and reinsurer writing more than 30 classes of business worldwide. Catlin wrote gross premiums of $1.4 billion in 2005. Catlin shares are traded on the London Stock Exchange (ticker symbol: CGL). More information about Catlin can be found at www.catlin.com. Netherlands-based ABN AMRO is a leading international bank with total assets of €986 billion (as at 30 June 2006). It has more than 3,700 branches in 52 countries, and has a staff of more than 110,000 full-time equivalents worldwide. ABN AMRO is listed on Euronext and the New York Stock Exchange. Guy Carpenter & Company Inc. is the world’s leading risk and reinsurance specialist and a part of the Marsh & McLennan Companies, Inc. Securities or investments, as applicable, are offered in the (i) United States through MMC Securities Corp., a US registered broker-dealer and member NASD/SIPC, and (ii) European Union through MMC Securities Ltd., regulated by the Financial Services Authority for the conduct of investment business in the United Kingdom. MMC Securities Corp. and MMC Securities Ltd. are affiliates of Guy Carpenter. Guy Carpenter’s website address is www.guycarp.com. Risk Management Solutions, Inc. (RMS) is the world’s leading provider of products and services for catastrophe risk management. More than 400 leading insurers, reinsurers, trading companies, and other financial institutions rely on RMS models to quantify, manage, and transfer risk. Founded at Stanford University in 1988, RMS serves clients today from offices in the U.S., Bermuda, the U.K., France, Switzerland, and Japan. For more information, visit our web site at www.rms.com. | |
| 2. |
Catlin operates four underwriting platforms:
The Catlin Syndicate, Catlin Bermuda and Catlin UK have financial strength ratings of ‘A’ (Excellent) from A.M. Best Company. Catlin Bermuda and Catlin UK have insurance financial strength ratings of ‘A-‘ (Strong) from Standard & Poor’s, whilst the Catlin Syndicate has a Lloyd’s Syndicate Assessment of ‘4-‘ (Low Dependency) from Standard & Poor’s | |
| 3. |
Catlin also operates offices worldwide which allow Catlin underwriters to work closely with local policyholders and brokers. The offices are located in the United States (Atlanta, Houston, New Orleans, New York and San Francisco), Canada (Toronto and Calgary), Australia (Sydney), Singapore, Hong Kong, Malaysia (Kuala Lumpur), Germany (Cologne), Belgium (Antwerp) and Guernsey. Catlin UK has regional offices in Glasgow, Leeds, Derby, Birmingham and Watford. | |