Longpoint Re II Ltd.

Longpoint Re II Ltd. is a Cayman Islands SPV set up to allow Travelers to transfer $500m of its hurricane risks to the capital market.

The Class A notes provide Travelers with 3 years of protection on a per-occurrence basis against certain U.S. hurricanes, the Class B notes provide similar protection but over a 4 year risk period. The transaction can be extended for up to 24 months (in increments of 3 months) to allow for loss development and reporting.

The trigger for the deal is based on the sum of PCS personal and commercial property losses within the defined risk zones and there will be an initial index trigger value of $2.25b. The trigger is modified due to state payout factors.

This transaction doesn’t target the normal hurricane risk zones of Florida and Gulf Coast; rather this deal provides Travelers with cover against hurricane losses in the east coast states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. That should help attract investors looking to diversify their hurricane risks away from the southern states.

Collateral for the deal will be invested in Treasury money market funds which are stable and have a high rating.

Update:

Travelers said in an annual report published in May 2012 that when the Longpoint Re II cat bond was reset using the latest version of the model it is estimated that it will increase their attachment point by around 70%, quite a jump. When Longpoint Re II came to market it had an attachment point of $2.25 billion of index-based losses. It was reset on 1st May 2011 and the attachment point from that time to 30th April 2012 was actually slightly lower at $2.208 billion. Travelers say that they have not yet determined the state weightings for the latest reset but they say “It is estimated that the attachment point for the index-based losses and the maximum limit on the reinsurance agreements in the Longpoint Re II program will increase by as much as 70%, reflecting increases in the third-party model’s industry estimate of covered losses.”