Swiss Re Insurance-Linked Fund Management

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Lakeside Re III Ltd.

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Lakeside Re III Ltd. – At a glance:

  • Issuer: Lakeside Re III Ltd.
  • Cedent / sponsor: Zurich American Insurance & Zurich Insurance Co. Ltd.
  • Placement / structuring agent/s: Munich Re and Swiss Re Capital Markets are joint lead structuring agents. Swiss Re Capital Markets are sole bookrunner. Munich Re Capital Markets GmbH are co-manager.
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: U.S. and Canadian earthquake
  • Size: $270m
  • Trigger type: Indemnity
  • Ratings: S&P: 'B+'
  • Date of issue: Dec 2012
  • Date of maturity (dd/mm/yyyy): 08/01/2016
  • Coupon / pricing yield Class A: 8.00%
  • news coverage: Articles discussing Lakeside Re III Ltd. from

Lakeside Re III Ltd. – Full details:

Lakeside Re III Ltd. see’s Zurich looking to replace and also expand the cover that their last catastrophe bond Lakeside Re II provided. That deal matures at the end of 2012 and Lakeside Re III is scheduled to complete at the renewals and run for three full years providing a three-year source of earthquake reinsurance in the U.S. and Canada.

Cover is on an indemnity trigger and annual aggregate basis, triggered by the cedents aggregate ultimate net losses. As well as earthquake cover this cat bond also covers various types of damage which could follow an earthquake or ground-shaking, including fire following, sprinkler leakage, volcanic disturbance or eruption, tsunami and flooding caused by dam or levy breaches.

Lakeside Re III broadens the scope of the cat bond coverage to provide reinsurance cover for earthquakes in the Canadian provinces of Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Quebec as well as the U.S. states of California, Michigan, Ohio, Wisconsin, Arkansas, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, Oregon and Washington. The U.S. states covered means that Zurich is including its New Madrid fault risks in this deal along with Californian and Pacific Northwest quake risks.

Under the terms of the underlying reinsurance contract Zurich maintains a retained share of at least 10% of the aggregated ultimate net losses for each annual risk period.

For an earthquake to become a covered event it must meet certain parameters, it must be reported by the USGS and it must cause ground-shaking in the covered area of intensity level VI or more (a measurement from the USGS Shakemap). For an event to qualify under the terms of the reinsurance contract the ultimate net loss to Zurich must be at least $35m, the franchise deductible level. If the deal completes at $225m the notes will cover 75% of losses from the attachment point of $650m up to the exhaustion point of $950m, with Zurich required to retain at least 10% of losses. The covered business is largely commercial but may include some personal risk.

According to Munich Re the Aggregate Ultimate Net Loss for each annual risk period is determined by:
− The aggregate of the Ultimate Net Loss for each Loss Occurrence
− To be included, the Ultimate Net Loss from a Loss Occurrence must be equal to or greater than the Franchise Deductible
− If such Ultimate Net Loss equals or exceeds the Franchise Deductible, then the entire amount of the Ultimate Net Loss is included

California contributes 62.9% of the expected loss of the cat bond, New Madrid is 12.6%, Pacific Northwest is 8.6%, Eastern Canada 4.8% and Western Canada 11.3%. Los Angeles and Vancouver contain the highest exposure by city.

The attachment probability for the notes is 2.9%, the expected loss is 2.09% and the exhaustion probability is 1.49%. The annualised expected loss is 2.04%. The notes will be reset annually based on the latest exposure data provided.

Based on remodelling of historical events by risk modeller RMS no historical events since 1906 would have reached the attachment point for this deal. Five years between 1663 and 1906 would have seen the cat bond attach and some principal reduction occur. 1732 (Montreal/19% principal reduction), 1811 (New Madrid/100% principal reduction), 1812 (two events in the New Madrid region/100% principal reduction), 1868 (Hayward/68% principal reduction) and 1906 (San Francisco/100% principal reduction) are years that saw events that caused principal reductions.

Collateral is being dealt with using collateral account but the deposits will be initially invested in the MEAG Lakeside Re III fund which has been established for this cat bond by Munich Re’s investment subsidiary.

Lakeside Re III is a Bermuda domiciled special purpose insurer. The single tranche of notes it is issuing have received a preliminary rating from Standard & Poor’s of ‘B+’.

Price guidance for the notes is 8.0% to 9.0%.


Before close, Lakeside Re III upsized this issuance by $45m to close at $270m of cover.

S&P affirmed the single tranche of notes rating at ‘B+’.

The $270m of notes were listed on the Bermuda Stock Exchange.

The notes priced at the lower end of the expected range at 8.0% above Treasury Money Market Funds.

Update 13th Feb 2014:

The attachment point for this cat bond has been lifted to $696m at the annual reset, with Zurich citing an increased exposure.

Due to the increased exposure in its insurance book and the need to maintain the expected loss of the cat bond layer, the attachment point was lifted to $696m and exhaustion for the layer it covers as well.

Update 16th Feb 2015:

Zurich has again listed the attachment point for its $270m Lakeside Re III catastrophe bond at the January 1st annual reset.

The attachment point has been lifted further to $777m for the layer of cover that Lakeside Re III provides cover for, as Zurich adjusted its reinsurance program, lifting retentions in some areas.

The change is based on updated exposure data and a stated reinsurance report, and so while maintaining the expected loss of the reinsurance layer provided by the cat bond at 2.04%, the attachment point of the cover from Lakeside Re III has been lifted to $777m. As a result the exhaustion point has increased as well to $1.077 billion.

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