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Clariden Leu’s ‘cat bond lite’ wins Catastrophe Risk Deal of the Year award from Environmental Finance


The catastrophe bond lite transactions, which were issued by Swiss insurance-linked securities investment manager Clariden Leu to provide more capacity to satisfy the investor inflows they were experiencing, have been recognised with an award. Environmental Finance magazine have awarded the Catastrophe Risk Deal of the Year award to Clariden Leu as recognition of these transactions innovative structure and goals.

Clariden Leu issued their first cat bond lite in August 2010, a $20m U.S. hurricane risk transaction which saw them write an industry-loss warranty for a Bermudian reinsurer and transform the over-the-counter derivative structure into a tradable fixed-income insurance-linked security.

Michael Stahel, head of insurance-linked investments at Clariden Leu explains; “We found ourselves in a tight spot, with more money that we had to invest than there were cat bonds being issued in the primary market. We never sought to be active as a structurer – we always thought we were a pure asset manager,” Stahel adds. “But we tried to show the market that the work is not so cumbersome.”

The beauty of these transactions is that they are designed purely to provide investment opportunities for investors in the Clariden Leu funds meaning that the transaction did not require rating or need to employ a third-party risk modeller. Clariden Leu estimate that knocked close to $600,000 off the cost off the structuring costs.

According to the Environmental Finance details on the first cat bond lite transaction, the deal paid investors a coupon of 9.25% and could only be triggered by two landfalling hurricanes which caused over $15 billion in losses each. Clariden Leu issued the bonds in such a way that they could be traded on the secondary market and provided pricing via Bloomberg and Lipper.

A second transaction was issued in June 2011 which took $50m worth of Florida hurricane risk written as an industry-loss warranty again and turned into a tradable security. This deal only paid 4.75% to investors and required three major hurricane losses on the Florida peninsula during the current season.

Environmental Finance say that Clariden Leu are working on a $20m-$30m European windstorm deal which will utilise the PERILS industry loss index. Michael Stahel commented; “These aren’t first event transactions – they add a nice diversifying element into our investors’ portfolios. We’ll continue to do these deals to some degree.”

Read about all the other winners in the Environmental Finance Awards 2011.

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