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NEW YORK--Hamilton, Bermuda-based Catlin Group Ltd. will receive catastrophe protection as a result of a $200.2 million multiperil catastrophe bond that is the industry's first publicly rated, collateralized debt obligation of natural catastrophe risk, according to New York-based reinsurance intermediary Guy Carpenter & Co., which advised Catlin on the transaction.
The innovative bond, which is the first cat bond rated AA by Standard & Poor's Corp., could open the cat bond market to new investors, said S&P director Gary Martucci. The bond's senior tranche has the AA rating.
The bond's issuer is Cayman Island-based Bay Haven Ltd., a special purposes vehicle established for the deal, said Mr. Martucci.
The three-year bond, which complements protection Catlin purchases through the traditional reinsurance marketplace, will offer coverage in the event of a series of severe natural catastrophes on an aggregate basis.
S&P said the transaction is structured as a cat swap, with Catlin obtaining collateralized protection if four or more natural catastrophe events occur in the risk period between the closing date and the scheduled maturity date in 2009.
Through the securitization, the note holders will assume the losses for the fourth through ninth events. Catlin will retain the first $100.1 million of losses that would result if there were three triggered risk events.
The bond, which is being brought to market by ABN AMRO London, is also the first catastrophe bond to use Newark, Calif.-based Risk Management Solutions Inc.'s new parametric triggers for non-U.S. losses, according to Carpenter.
Perils covered include: U.S. hurricanes in Florida, the Gulf states and the East Coast; California earthquakes; New Madrid (U.S. Midwest) earthquakes; United Kingdom windstorms; non-U.K. windstorms; and Japanese typhoons and earthquakes."It is an innovative capital market structure," said Mr. Martucci. "It meets S&P's criteria of rating cat bonds in the AA range, yet meets the company's needs," he said. It also potentially opens up the class of cat bonds to investors that require AA-rated securities, he said.
Separately, Catlin announced earlier this month that it has made a $1.01 billion offer to acquire Wellington Underwriting P.L.C., which would make it one of the largest managing general agencies at Lloyd's of London.