Back in August I wrote about the downgrade of notes in the credit reinsurance securitisation Crystal Credit which was issued by Swiss Re in 2006. At the time things were looking very bad for Crystal Credit and Standard & Poor’s had downgraded the notes which were designed to provide Swiss Re with cat bond type credit reinsurance protection. Losses to Swiss Re’s credit reinsurance business continue to be in line with expectations and the deal looks likely to be triggered such that principal will not be paid back in full to investors.
Standard & Poor’s report today that further information has been provided by Swiss Re including confidential information regarding its reserving levels and additional analysis of the potential development of the portfolio under various scenarios. Claim activity for Q3 2009 is in line with S&P’s expectations and as such they aren’t taking any further rating action. It still looks likely that the Class B and C notes will default but it will take some time to uncover the full extent of losses as credit reinsurance deficits are uncovered. S&P say it is likely that Swiss Re will not be able to deliver a full proof of loss until April 2012.
That’s not going to make the investors feel any better though, but as we said in our last post on the subject this type of transaction was never going to be plain sailing under the market conditions of the last year or so.