Swiss Re Insurance-Linked Fund Management

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A.M. Best downgrades Montana Re Ltd. 2009 catastrophe bond due to new RMS model


Ratings agency A.M. Best have followed suit and downgraded the two tranches of the 2009 Montana Re Ltd. catastrophe bond transaction due to the significant increases in attachment probabilities brought on by the new and updated version of the Risk Management Solutions U.S. hurricane risk model.

Yesterday, Standard & Poor’s who rate the majority of cat bond transactions, downgraded six cat bond deals due to the change in risk profile resulting from running the transactions through the new risk model. A.M. Best had previously placed the two tranches of Montana Re 2009 under review back in May.

Montana Re Ltd.’s Series 2009-1 $100m Class A notes have been downgraded by A.M. Best from ‘BB-‘ to ‘B’ while the $75m Class B notes have been downgraded from ‘B’ to ‘CCC’. Both tranches of notes now have a stable outlook according to the A.M. Best review and are due on 7th December 2012.

The Montana Re 2009 deal provides Flagstone Re with cover against U.S. hurricanes and earthquakes on a per-occurrence basis over three years.

This should be the only rating change to come from A.M. Best resulting from the new RMS risk model, as we believe this is the only catastrophe bond transaction affected that they hold ratings for.

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