Brit Insurance Ltd’s catastrophe bond Fremantle Ltd. has had it’s rating upgraded by Fitch Ratings today. The ClassB notes have been upgraded to ‘AA’ and the Class A and C notes have been affirmed with no rating changes.
The cat bond deal, which provided Brit with coverage against U.S. hurricanes, earthquakes, European windstorms, Japanese earthquakes and Asian typhoons, expires in 2010. The terms of the deal meant that four loss events had to occur before any loss would be born by the noteholders. The only event to date which is likely to qualify is hurricane Ike, and with only one hurricane season to go it’s becoming less likely that those other three events will happen. Currently the losses reported by Ike are below the level required to qualify but the likelihood of them increasing (as the market expects) has been taken into consideration.
The Fremantle deal was designed with this in mind, with the likelihood of loss tailing off in the latter period of the deal. Noteholders must be feeling confident that this transaction will expire without any impacts to their investments.