Scor announce closure of Atlas Reinsurance V catastrophe bond

by Artemis on February 19, 2009

Scor have officially announce the closure of it’s Atlas Reinsurance V catastrophe bond today. This is the news the market has been waiting to hear, the successful resumption of the cat bond market after a period of uncertainty and zero issuance due to the economic climate and failure of Lehmans. It’s the first cat bond issued in six months making this a fairly momentous occasion that will be celebrated market wide.

Improvements have been made to this deals structure to help manage counterparty risk through an enhanced total-return swap to help give confidence and assurance to investors, this has been a major sticking point since Lehmans collapse. Other enhancements made to help this cat bond get to market include:

  • full and permanent transparency regarding the asset development of the collateral for investors;
  • US-government-backed debt obligations as the underlying securities;
  • top-up “margining” facility by the total return swap counterparty that guarantees that the collateral will constantly be replenished in any case of a drop in the underlying security.

Taking these steps to enhance the structure and security of the cat bond is evidence of how the market can adapt with the times and constantly strives to innovate in order to keep the capital markets a viable risk transfer alternative to traditional reinsurance.

The full press release from Scor is below and as ever you can read about this cat bond deal and many others in our Deal Directory.

SCOR reopens market for catastrophe bonds, setting new innovative standard with its USD 200 million cat cover

On 19 February 2009, SCOR closed the three series of its “Atlas V” catastrophe bond, the first “cat bond” issued worldwide in six months. The multi-year property catastrophe (“CAT”) agreement with Atlas V Capital Limited (“Atlas V”) provides with protection of USD 200 million for exposures to earthquakes and hurricanes in the USA and Puerto Rico.

The trigger on “Atlas V” is an industry loss warranty, based on state-level Property Claims Services (PCS) insured industry loss estimates, further distributed to county level by modelling firm AIR Worldwide. Events are covered for the risk period from 20 February 2009 to 19 February 2012.

The USD 200 million cat bond is divided into three series of notes: USD 50 million Series 1 (rated B+ by Standard & Poor’s), USD 100 million Series 2 (B+) and USD 50 million Series 3 (B). The notes collectively offer blended coverage for subsequent events.

The “Atlas V” cat bond sets new and substantially improved transparency and security standards for investors. It applies an innovative new structure through:

  • improvements in managing counterparty risk for SCOR and investors by employing a much-enhanced total return swap structure;
  • full and permanent transparency regarding the asset development of the collateral for investors;
  • US-government-backed debt obligations as the underlying securities;
  • top-up “margining” facility by the total return swap counterparty that guarantees that the collateral will constantly be replenished in any case of a drop in the underlying security.

Jean-Luc Besson, Chief Risk Officer of SCOR, comments, “The market has been awaiting this first new cat bond issue with revised structures for collateral management and disclosure. With the enhancements made to Atlas V, SCOR, being a regular user of the capital markets in parallel to the traditional retrocession market, demonstrates its prominent market role. We prove that stability together with innovation satisfies market demand even in today’s extremely challenging financial markets. In the context of the current retrocession market for natural catastrophe risks, this cat bond is a cost-effective and highly-secure financial mechanism, providing additional protection for the Group’s US natural catastrophe risk exposures, further strengthening its capital shield.”

Deutsche Bank and BNP Paribas are joint book-runners on “Atlas V”, with Guy Carpenter acting as structuring advisor. Deutsche Bank will act as total return swap (TRS) counterparty on “Atlas V”. AIR Worldwide acts as Modelling and Calculation Agent.

“Atlas V” is a special-purpose company incorporated under the laws of Ireland. The  agreement in place with SCOR Global P&C SE in the form of a derivative is fully funded by the proceeds of “Atlas V”. The “Atlas V” notes were placed with institutional investors around the world, the placement having been significantly oversubscribed.

SCOR is a frequent issuer of Insurance Linked Securities, with seven transactions completed: Atlas Reinsurance I, II, III and IV and Atlas V, Helix, originally issued by Converium, which is now part of SCOR SE, and finally the four-year mortality swap. Atlas III, Atlas IV, Helix and the mortality swap provide ongoing protection.

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