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Swap agreement provides coverage for Catlin


HAMILTON, Bermuda—Catlin Group Ltd., the Bermuda-based insurer and reinsurer, has announced that its Bermuda-based subsidiary, Catlin Insurance Co. Ltd, plans to enter a catastrophe swap agreement that would provide it with coverage of up to $200.25 million.

The transaction would provide Catlin with fully collateralized protection against what it describes as "severe" natural catastrophes.

This deal would complement the protection that Catlin already buys through the traditional reinsurance marketplace, it said.

Catlin said that the catastrophe swap would respond to up to six covered risk events over a three year period. No payout would be made for the first three events.

Bay Haven Ltd, the Bermuda special purpose vehicle being created to effect the transaction, would pay Catlin Bermuda $33.40 million per covered risk event after the third event, up to a maximum of six events.

The aggregate limit payable to Catlin Bermuda is $200.25 million.

The bond would cover hurricanes in the East Coast, Florida and Gulf Coast of the United States, Californian earthquakes, New Madrid earthquakes, United Kingdom windstorms, European windstorms, Japanese typhoons and Japanese earthquakes.

Only one payment would be made for each covered risk event.

The catastrophe swap would, however, respond to multiple occurrences of a given category of risk event, such as if more than one qualifying U.S. hurricane occurs during the period.

Catlin said that the catastrophe swap would be triggered for U.S. risk events if aggregate insurance industry losses worked out by Property Claims Services meet or exceed defined threshold amounts.

Coverage for non-U.S. 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 catastrophe modeling agency Risk Management Solutions Inc.

Reinsurance broker Guy Carpenter & Company Inc. also worked on the deal.

Bay Haven will issue two sets of floating rate notes to investors to fund the coverage-- Class A and Class B notes.

The transaction will be brought to the securities market this week by the insurance and weather derivatives team at ABN AMRO in London.

It says that it would be the first publicly-rated collateralized debt obligation of natural catastrophe risk.

Catlin says that the bond will 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."