Crystal Credit Ltd.

Swiss Re completed a landmark credit reinsurance securitization, the first such transaction in the insurance-linked securities (ILS) market.

Crystal Credit Ltd. issued EUR 252 million of notes to enable Swiss Re to transfer certain credit insurance risks to the capital markets.

The risk transfer saw a retrocession agreement signed between Swiss Re and Crystal Credit Ltd., to cover the reinsurers’ aggregate losses on its credit reinsurance business for years 2006, 2007 and 2008 above a first-loss retention of EUR 666 million ($805.9 million).

Crystal Credit issued EUR 252 million of principal at-risk variable-rate notes to be sold to investors and the funding was used to collateralize the retrocessional reinsurance agreement.

The indemnity trigger allowed Swiss Re to benefit from capital relief at minimal basis risk, while investors benefited from the returns of an actively managed credit insurance book over three years.

The issuance was purchased by a range of institutional investors and consisted of three separate tranches of notes, with an average pre-tax coupon of three-month Euribor plus 3.93% per annum, paid quarterly.

The subject business consisted of a reinsurance portfolio covering millions of credit insurance contracts, in a revolving portfolio across the 2006-2008 underwriting years. Credit insurance contracts originated in Europe dominated the risk pool, while diversification within it was said to be industry-wide.

The notes had a scheduled maturity of three years and a legal final maturity of 6.5 years.

Peter Schmidt, Swiss Re’s Head of credit solutions, said, “This securitization is interesting firstly because it is based on a highly-diversified underlying risk, in terms of geography and industry sectors. Secondly, it sets a new benchmark for the insurance sector in terms of capital and capacity management.”

John Fitzpatrick, Swiss Re’s Head of financial services also said, “This is the first indemnity-based credit reinsurance securitization ever completed. The objective of the transaction is to achieve economic, regulatory and rating capital relief as part of Swiss Re’s overall objective to transfer risks to the capital markets and further improve capital efficiency.”