Swiss Re Insurance-Linked Fund Management

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Blue Coast Ltd catastrophe bond ratings downgraded


Following on from Tuesdays news that Standard & Poor’s had placed the notes of the Blue Coast Ltd. catastrophe bond onto CreditWatch negative, S&P have now announced that the three tranches have been downgraded. Blue Coast is a 2008 deal that provides Allianz Risk Transfer with cover against U.S. hurricanes on certain coastal counties of Texas, Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina, and North Carolina until Dec. 1, 2010. Hurricanes Gustav and Ike have both taken their toll on the covered counties and as such the estimated aggregate loss amount is rising beyond where it is expected to be at this stage of the transactions lifetime.

Current estimate losses sit at $73.5m which is significantly higher than the $28.2m ‘cumulative average monthly contribution to the aggregate loss amount’ expected at this stage. This means that a greater than expected proportion of the deals $170m retention has been eroded. Of course, in S&P’s eyes this now means the likelihood of attachment has increased significantly and as such the ratings have to be downgraded.

With two full hurricane seasons to run before this deal runs it’s course the chances of attachment are quite high which is surely going to be off putting to investors.

The three tranches of the deal are now rated Class A ‘B+’, Class B ‘B-‘ and Class C ‘CCC+’.

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