Nelson Re catastrophe bonds not affected by Glacier Re renewal deal with Endurance

Moody’s Investor Services has issued a press release stating that the Nelson Re catastrophe bond transaction sponsored by Glacier Re will not be affected by Glacier’s recently announced quota share and renewal rights transaction with Endurance Speciality Holdings.

Glacier Re announced earlier this month that it was putting itself into run-off and discontinuing underwriting operations. It’s Nelson Re cat bond had its outlook downgraded by Moody’s on certain tranches of notes as a result of this.

Now Endurance have struck a deal with Glacier Re to take on some of its renewal rights so Moody’s have issued this press release to explain how it affects the insurance-linked securities of the Nelson Re deal.

Nelson Re cat bonds unaffected by Glacier Re renewal rights transaction with Endurance

Moody’s Investors Service said that the catastrophe bond ratings of Nelson Re Ltd. are unaffected by the quota share and renewal rights transactions between Glacier Reinsurance AG (“Glacier Re”) and Endurance Specialty Holdings Ltd. (“Endurance”). In Moody’s opinion, neither transaction will have a material impact on Nelson Re bondholders, either positively or negatively. Nelson Re and its catastrophe bond investors provide reinsurance protection to Glacier Re, which announced in late August that it would discontinue writing new business.

On September 10, Endurance announced that it had acquired a portion of Glacier Re’s international and US property catastrophe and global specialty reinsurance business. In particular, Endurance will:

1) effective immediately, provide quota share reinsurance on select treaties within Glacier Re’s portfolio (without assuming prior loss reserve liabilities) and

2) acquire the renewal rights to certain Glacier Re accounts.

“Based on our understanding of the reinsurance agreement between Nelson Re and Glacier Re, neither of these transactions will materially impact Nelson Re bondholders,” said Kevin Lee, senior credit officer at Moody’s. In particular:

– Endurance’s quota share reinsurance protection will not inure to the benefit of Nelson Re bondholders;

– The quota share transaction will reduce cash flow to Glacier Re due to premiums ceded to Endurance (offset partly by the ceding commission) but it will also reduce risk exposure to Glacier Re. Therefore the transaction is generally credit neutral from the perspective of Glacier Re’s ability to honor its obligations to Nelson Re;

– Accounts that will be renewed with Endurance will not be covered by Nelson Re because the reinsurance agreement between Nelson Re and Glacier Re cannot be assigned to Endurance.

Nelson Re’s catastrophe bonds are rated as follows:

– Class H ($45.0 million) at B3 (sf) with a negative outlook;

– Class I ($67.5 million) at B1 (sf) with a negative outlook;

– Class G ($67.5 million) at Ca (sf) with a developing outlook.

Nelson Re issued the Class G, H and I catastrophe bonds in June 2008 as a way for bondholders to provide per occurrence excess-of-loss reinsurance to Glacier Re for U.S. hurricane/earthquake events (Class G) and European windstorm events (Class H and I). In exchange, Glacier Re pays reinsurance premiums to Nelson Re, which in turn are passed on to bondholders as interest.