Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Flagstone Re formally announce Valais Re cat bond deal


Flagstone Re have just released a press release on their recent Valais Re transaction, a copy of the release is below:

HAMILTON, Bermuda, Jun 02, 2008 — Flagstone Reinsurance Holdings Limited (NYSE:FSR) announced today that it has purchased three year fully collateralized retrocessional coverage on an indemnity basis from Valais Re Ltd. (“Valais Re”), a special purpose reinsurer established in the Cayman Islands. Valais Re was formed as a program structure enabling further issuance of additional series of notes in the future.

Valais Re is a groundbreaking transaction that offers Flagstone indemnity protection on its global reinsurance portfolio through two separate tranches. Valais Re has issued USD $64 million of Annual Aggregate Class A notes and USD $40 million of Per Occurrence Class C notes to collateralize its obligations under the retrocession agreements. Risk modeling for the transaction was performed by Flagstone with an in-depth modeling and process review conducted by Risk Management Solutions, Inc. (“RMS”). In addition, RMS further performed a modeling calibration on a sample of Flagstone’s modeled results to conclude that Flagstone’s results for this sample were reasonable and, on average, more conservative than those calculated by RMS. David Brown, Flagstone CEO, commented: “We are very pleased with the outcome of this transaction. The multi-year, economical coverage on an indemnity basis gives us more price certainty over the cycle and avoids the basis-risk inherent in index or parametric-based covers. In particular, the ability to access the aggregate protection provide by the A tranche provides protection against multiple worldwide events that we believe would be hard to obtain in traditional markets. By diversifying our purchase of coverage into the capital markets we continue to reinforce our security for our clients and stockholders.”

Mark Byrne, Flagstone’s Chairman, added: “This is our second cat bond type structure and the first placed under rule 144A. We also operate three sidecars. Successfully closing this transaction in the current challenging credit markets is a credit to the efforts of our team, coupled with our capital markets partners.”

Swiss Re Capital Markets and UBS Investment Bank advised Flagstone on the transaction and underwrote the Valais Re notes.

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