Montana Re was first five peril catastrophe bond to use Paradex

by Artemis on December 28, 2010

The recent Montana Re Ltd. cat bond issued for Flagstone Re was the first deal to feature five different perils all of which utilise a Risk Management Solutions (RMS) Paradex index trigger. The deal also features a unique parametric ‘cat-in-a-circle’ arrangement for Cayman Islands hurricane risk. The RMS press release is below.

Flagstone Re Sponsors $210m Bond Using Suite of RMS Paradex Indices

Newark, Calif. – December 23, 2010 – Flagstone Reassurance Suisse SA and Risk Management Solutions (RMS) today announced the successful placement of $210 million of multi-peril Montana Re 2010-1 Notes, the second offering sponsored through the Montana Re shelf program. RMS conducted the expert risk analysis for the three tranches, which provide Flagstone Re with coverage against U.S. and Cayman Island hurricane, U.S. earthquake, Japan typhoon and earthquake, and Europe windstorm through December 31, 2013.

“We designed this transaction to be as investor-friendly as possible,” said David Flitman, chief actuary at Flagstone Re. “The Paradex trigger reduces investors’ exposure to non-modeled risks, and the quick settlement guaranteed by Paradex allows us to shorten the potential extension period to 60 days.”

“We are delighted to help Flagstone Re bring this transaction to market and, in the process, see the first five-peril Paradex deal,” said Peter Nakada, managing director of RiskMarkets at RMS. “Investor demand for this form of coverage was again very strong, and the transaction now brings the total volume of Paradex deals to one billion dollars.”

Additionally, RMS worked with Flagstone Re to craft customized parametric “cat-in-a-circle” cover for the Cayman Islands, making this the first time this risk has been securitized by RMS.

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