Montana Re Ltd. catastrophe bond placed on CreditWatch negative by S&P

by Artemis on March 28, 2011

Bermuda based reinsurer Flagstone Re’s $210m Montana Re Ltd. 2010 catastrophe bond has become the latest cat bond with exposure to the Japanese earthquake to have its ratings put on CreditWatch negative by Standard & Poor’s. The deal provides Flagstone Re with cover against U.S. hurricane and earthquake, European windstorm, Cayman Islands hurricane and Japanese typhoon and earthquake risks.

Montana Re is only exposed to losses from second and subsequent events which occur on an annual basis, however the issuer has submitted an activation notice to calculation agent and risk modeller Risk Management Solutions (RMS) asking them to determine whether the earthquake in Japan on the 11th March will count as an activation event for the deal.

If RMS determine that the Japanese earthquake was a qualifying event under the terms of the deal then Montana Re Ltd. will be exposed to losses should any other qualifying event occur before 31st December 2011.

It’s only the $60m Class E tranche of this $210m deal which have exposure to Japanese quakes.

If it is determined that the disaster was a covered event then S&P say they will downgrade the rating on Montana Re’s Class E notes to ‘CCC-‘. If it is determined that it wasn’t a qualifying event then the CreditWatch will be removed and the ratings will remain unchanged.

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