NEW YORK -- In an unusual reinsurance arrangement, Swiss Reinsurance Co. has created a basis swap with a New York reinsurance company for U.S. windstorm damage.

The transaction uses capital market techniques but not the capital markets. Its creators at Swiss Re say, though, that the transaction's form could be used to access capital markets in the future.

This basis risk reinsurance transaction allows the reinsurer -- whose name was not revealed -- either to receive from or pay to Swiss Re as much as $10 million.

The transaction rests on two triggers. The first is the amount of Southeast U.S. windstorm losses the unnamed reinsurer sustains over a 12-month period, beginning Aug. 22. The second trigger is the amount of Southeast U.S. windstorm losses sustained by the overall industry over the same time period, as calculated by the Property Claim Services unit of Insurance Services Office Inc. The amounts of the triggers were not revealed.

If the company's losses exceed their trigger but the industry's losses are below that trigger, Swiss Re will pay the reinsurer the amount by which the individual trigger is exceeded. On the other hand, if the company's losses do not exceed its trigger but the industry loss trigger is exceeded, the company will pay Swiss Re an amount determined by a formula.

"If the losses from neither side exceed the trigger, then nothing happens," explained Gail Belonsky, director at Swiss Re New Markets in New York, an alternative risk transfer unit of Swiss Re. Swiss Re New Markets put the deal together, but Zurich, Switzerland-based European Re, another Swiss Re unit, will assume the risk.

If both the company's and industry's losses exceed their respective triggers, the two reinsurers will pay each other, possibly resulting in a wash.

An advantage the deal offers the reinsurer is a lower premium than a standard catastrophe reinsurance program.

Ms. Belonsky said she is unaware of any other transactions similar to this one. In this deal, Swiss Re looks to the New York reinsurer for payment if industry losses exceed their trigger, but in the future Swiss Re could also look to other reinsurers or to the capital markets, Ms. Belonsky said.

Joining the two parts of the transaction into one deal is "definitely not common," said Tony Rettino, director of Aon Capital Markets in Chicago.

Mr. Rettino added that this type of transaction, where capital market concepts are applied to reinsurance, will grow in popularity in the future. "Certainly, we are seeing a broad application of the capital market concepts in the reinsurance markets," he said.

Donald Watson, director and head of the global reinsurance group at Standard & Poor's Corp. in New York, said, "It's a neat strategy for hedging your risk." He added, "This allows (reinsurers) to provide cat protection at a cheaper price."

Bringing in the capital markets will take some time, "but this type of transaction can make it easier to be done in the future," Mr. Watson said.