Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Montana Re Ltd.

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Montana Re Ltd. – At a glance:

  • Issuer: Montana Re Ltd.
  • Cedent / sponsor: Flagstone Re
  • Placement / structuring agent/s: Goldman, Sachs & Co. and Aon Benfield Securities Inc. are joint underwriters. Deutsche Bank is indenture trustee. Bank of New York Mellon is acting as collateral account provider.
  • Risk modelling / calculation agents etc: PCS are reporting agency and RMS are providing risk modelling
  • Risks / perils covered: U.S. hurricane, U.S. earthquake
  • Size: $175m
  • Trigger type: Industry loss index
  • Ratings: S&P: Class A - 'B', Class B - 'CCC'
  • Date of issue: Nov 2009
  • news coverage: Articles discussing Montana Re Ltd. from

Montana Re Ltd. – Full details:

Montana Re Ltd. (a Cayman Islands based SPV) is a three year catastrophe bond transaction designed to provide Flagstone Re with protection against U.S. hurricanes and earthquakes.

Hurricane exposure includes most of the U.S. Atlantic, Gulf coasts and Florida. Earthquake exposure covers the 48 contiguous states and the District of Columbia.

The deal is structured in two tranches of series 2009-1 notes. The $100m of Class A notes are exposed solely to losses above $491m from U.S. hurricanes, while the $75m of Class B notes are exposed to losses above $342m from both U.S hurricanes and earthquakes. Standard and Poor’s have rated the Class A notes ‘BB-’ and the Class B ‘B-’.

The deal utilises a modified (because of state payout factors) PCS index-based industry loss trigger. Losses will be triggered by modified PCS index-based industry losses (modified to account for state payout factors), so based on the sum of PCS reported insured personal property (including auto) and commercial lines losses per state multiplied by state weighting factors.

This deal uses an asset repurchase method for collateral in that Goldman Sachs International (GSI), as repurchase counterparty, will enter into two Global Master Repurchase Agreements (GMRA) with Montana Re, the size of which will equal the outstanding unimpaired principal of the Class A and B notes. GSI sells security assets to Montana Re in return for cash, with an obligation to repurchase the securities at maturity. The amount of securities held will be kept overcollateralized and market value will be marked on a daily basis by custodian Bank of New York Mellon.

The transaction can extend by up to 18 months for a hurricane event and 24 months for an earthquake event to allow for loss development and reporting to be finalised.

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