Mystic Re Ltd. (Series 2006-1)

The first of the Mystic Re transactions from Liberty Mutual saw them secure $200m of U.S. hurricane cat bond source of index coverage for hurricanes in the covered area (all states that border the Atlantic from Maryland to Maine, plus Vermont and Washington D.C.) on a per occurrence basis over a three-year period.

Mystic is a special-purpose Cayman Islands Class B insurer whose ordinary shares are held in a charitable trust. After Mystic issued the notes, it invested the proceeds in high-quality permitted investments within a collateral account. Mystic will swap the total return of the asset portfolio with European Finance Reinsurance Co. Ltd., which has been guaranteed by Swiss Reinsurance Co. in exchange for quarterly LIBOR-based payments.

The notes will provide Liberty Mutual Insurance Co. with a source of multiyear retrocessional capacity linked to reinsurance of hurricane exposure for the covered area). If a hurricane passes through the covered area and the estimated insured industry property losses from personal lines, commercial lines, and auto and vehicle lines (workers’ compensation losses will be excluded from the calculation) as set forth in the most recent catastrophe bulletin release by the Property Claim Services results in a loss of more than $30.0 billion, then the noteholders will be at risk for a loss of principal. If the losses equal or exceed $40.0 billion, then the entire principal amount will be lost. If a loss has occurred, assets in the collateral account will be sold and the proceeds will be sent to Liberty Mutual.