Loma Reinsurance Ltd. (Series 2011-1) – Full details:
This is Bermuda reinsurer Argo Re’s first catastrophe bond issuance.
Loma Re issued a single tranche of Series 2011-1 Class A catastrophe bond notes designed to cover Argo Re’s losses from qualifying catastrophes.
Covered perils are hurricanes and earthquakes in the U.S., windstorms in Europe, and earthquakes in Japan, each of which has an activation point which if reached puts the notes on risk for subsequent events and a loss trigger level which if reached causes losses to the investor noteholders.
Argo Re will cede certain risks to Loma Reinsurance Ltd. who will then enter into a repurchase agreement with Goldman Sachs which will see them sell Loma Re a pool of eligible securities which will be overcollateralized.
Proceeds of the sale of the notes will be entered into a collateral account. Goldman Sachs as repurchase counterparty will pay a three-month interest payment equal to LIBOR while Argo Re will pay a quarterly reinsurance premium which will equal the spread above LIBOR due to investors.
All of the modelled perils include demand surge, U.S. hurricanes include 10% of coastal storm surge losses (except for Hawaii) and both U.S. and Japan quake include fire following (except for Alaska and Hawaii). U.S. hurricane and earthquake use a trigger based on PCS reported index of insured industry losses, European windstorm risks use the PERILS index-based industry loss data and for Japanese earthquakes AIR Worldwide will use data from the Kyoshin Network (K-NET) for event parameters and their model to determine a parametric loss index.
As it is structured as a second and subsequent event cat bond Loma Re can only be activated, after which it is on risk for subsequent events, by a U.S. hurricane or earthquake or Japanese earthquake causing over $30 billion of losses or a European windstorm causing over $10 billion of losses.
The transaction has no annual reset and there will be a single risk period of 18 months running from the deals close to late December 2012.
There have been a number of historical catastrophe events which would have triggered this cat bond as it is structured (including hurricanes Andrew and Katrina, European windstorm Lothar and possibly the recent Tohoku earthquake) however never have two qualifying events occurred within an 18 month period which would cause a loss to investors.