Chartis seeking new layer of cover with second Lodestone Re cat bond issuance

by Artemis on November 30, 2010

Chartis are returning to the catastrophe bond market with a second issuance under their Lodestone Re Ltd. cat bond structure. Lodestone Re Ltd., a Bermuda domiciled SPV, was utilised to issue $425m worth of insurance-linked securities earlier this year in May. Now Chartis are seeking a new layer of cover for their subsidiary National Union Fire Insurance Company of Pittsburgh for the same perils utilising the same deal structure.

Lodestone Re Ltd. Series 2010-2 Class A-1 and Class A-2 tranches of notes are being issued to provide Chartis’ subsidiary with increased cover for U.S. hurricanes and earthquakes. The cat bond is targeting $250m of additional cover for Chartis, although it’s worth noting that the issuance earlier this year also targeted $250m but upsized significantly to $425m by close, so this may prove a popular deal with investors.

The transaction will provide Chartis’ subsidiary with 3 years of cover for the two perils and mature in December 2013. The only differences in structure between this and the earlier series of catastrophe bonds issued by Lodestone Re are the attachment and exhaustion points. The Class A-1 notes are extremely similar to the earlier issuance except that the 2010-2 Class A-1 notes will have a probability of attachment of 1.13% and an expected loss of 0.95% versus 1.14% and 0.96%, respectively, for the Series 2010-1 Class A notes. Standard & Poor’s, who are rating the deal say that is due to simulation error in the modelling process.

The new Series 2010-2 Class A-2 notes provide a new layer of cover not provided by the earlier issuance from Lodestone Re. These notes attach at $5.85 billion and have an exhaustion point of $6.5 billion. The earlier cat bond Series 2010-1 Class B notes attached at $5 billion up to $6.0 billion.

Standard & Poor’s have given this second Lodestone Re Ltd. deal preliminary ratings of ‘BB+’ and ‘BB’ ratings to the Series 2010-2 Class A-1 and Class A-2 notes, respectively.

This kind of repetition of deals is important for the catastrophe bond market as it shows cedents are confident in the structure they employ and helps to give investors confidence. We’ll bring you more on this deal as and when details emerge, and as ever it is listed in our catastrophe bond deal directory.

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