Tramline Re Ltd. (Series 2011-1)

This is the first catastrophe bond we are aware of Amlin’s involvement in.

This $75m cat bond is being issued by Bermuda based SPV Tramline Re Ltd. Through the deal Amlin AG are seeking $75m of fully collateralized multi-year reinsurance cover from the capital markets on an annual aggregate basis for three years until December 2014. The risks being covered are certain of Amlin AG’s U.S. hurricane, U.S. earthquake, and Europe windstorm risks.

The covered areas are. U.S. hurricane: the usual Gulf, Florida and Eastern coastal states. U.S. earthquake: California, plus other states including, Tennessee, Washington, Oregon, Arkansas, Indiana, Missouri, South Carolina, Kentucky, Illinois, Mississippi (we think this has broadened to include every U.S. state). European windstorm: U.K., France, The Netherlands, Belgium, Sweden, Denmark, Germany, Switzerland, Ireland, Norway, Luxembourg.

This 2011-1 Series of notes is the first under a possible prorogram which Amlin have sponsored, meaning they could be looking to regular issue cat bonds under Tramline Re. This issue is by Amlin AG but the program is set up so that other Amlin PLC subsidiaries could use the Tramline cat bond program in future.

This cat bond is an annual aggregate deal with three risk periods of one year each. The trigger point is at an index value of 630 up to 730 and a qualifying event must have an index level of 75 or above to contribute to the aggregate. The annual aggregate nature of this cat bond will provide Amlin with a source of cover for both frequency and severity events.

The aggregate level resets annually to zero. Payout factors may also be reset for each peril using the most recent industry exposure data.

The deal can be extended by 24 months in 3 month increments unless there has been a U.S. earthquake in which case the extension is 36 months (we assume to allow for loss development as earthquakes can take much longer for the full impacts to be known).

After an event, AIR will receive an event notice and then calculate an event index to establish whether it qualifies.

In order for the notes to face a loss, it’s said that an event the size of the 1926 U.S. hurricane or the 1906 San Francisco earthquake would be required. The annualized probability of attachment is 4.34%.

Collateral from the sale of the notes will be invested in U.S Treasury money market firms.

The deal is pricing somewhere in the range of 1650-1750 basis points above money market funds.

Update: Tramline Re Ltd. upsized before close to $150m. The deal priced at the lower end of expectations at 1675 basis points above money market funds.