Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Blue Danube Ltd. catastrophe bond to be sponsored by Allianz


The tenth catastrophe bond of 2012 has begun marketing this week, adding to the record Q1 issuance seen so far this year (details of them all can be found in our Deal Directory). Blue Danube Ltd. is sponsored by German insurer Allianz, a regular ILS and cat bond sponsor, who tend to use the word ‘blue’ somewhere in the name of their SPV’s (see the Blue Fin, Blue Coast and Blue Wings deals in our directory). Allianz’s Blue Fin Ltd. Series 2 cat bond matures in April and this Blue Danube transaction will offer some replacement for and also extend the cover that deal provided.

Blue Danube Ltd. is a Bermuda domiciled SPV and variable rate note program which was registered on the 9th February 2012. Blue Danube Ltd. will seek to issue a $200m cat bond in two $100m tranches of Series 2012-1 cat bond notes with the aim of the transaction being to provide a source of fully collateralized modelled industry loss cover to Allianz on a per-occurrence basis for the peak perils of U.S. hurricane, U.S. earthquake, Canada earthquakes and also Caribbean island and Mexican hurricane risks. The inclusion of Canadian earthquake risks and Caribbean and Mexican hurricane risks should make the deal attractive to investors as it will offer them some diversification as these are more unusual risks in cat bond transactions.

The modelled industry loss trigger will weight any event industry losses against Allianz’s market share thus providing a trigger mechanism that is better matched to Allianz’s covered business. Cover from Blue Danube is for both personal and commercial lines of business.

The $100m of Class A notes will provide cover above an index value attachment point of 200 up to an exhaustion point of 225. The $100m of Class B notes have an attachment point of 112.5 and an exhaustion point of 162.5.

AIR Worldwide are risk modeller for this deal. Property Claims Services are reporting agency. PCS will provide event data to AIR who will then establish whether a covered event has occurred under the terms of the transaction. AIR will also calculate the market share factors after the event using modelled loss techniques and using that and the event data calculate an index value for each event. There are three annual risk periods after each of which various factors can be reset.

Allianz Argos 14 GmbH is the actual counterparty to the risk transfer contracts in this transaction, Allianz SE acts as guarantor for its obligations under the risk transfer contracts.

The collateral from the sale of the notes will be invested in International Bank for Reconstruction and Development (IBRD) notes.

This Blue Danube transaction is expected to provide cover to Allianz for a three-year period from April 3rd 2012 to April 2nd 2015.

Standard & Poor’s have given the Class A and Class B tranches of notes ratings of ‘BB+’ and ‘BB-‘ respectively.

This deal should have a good chance of growing during the marketing phase as the addition of unusual perils, Canadian earthquake risks, Caribbean and Mexican hurricanes, and the diversification they offer should make it popular amongst investors.

We’ll bring you more details when they become available and you can find the Blue Danube Ltd. transaction in our directory of cat bond deals.

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