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Original Risk: A Society for Change Agents

Foundation Re III Ltd. Series 2011-1 catastrophe bond being marketed


The Hartford is once again returning to the catastrophe bond market with its latest issuance in the Foundation Re series of deals. Active in cat bond issuance since 2004 when it issued its first Foundation Re transaction, The Hartford has become a regular issuer of insurance-linked securities to provide it with multi-peril reinsurance protection. This latest deal (a single peril transaction) to be issued by the Cayman Islands based SPV is designed to complement its Foundation Re III 2010 deal and to replace some of the cover that Foundation Re II from 2006 provided.

Foundation Re III Ltd. Series 2011-1 is designed to provide protection on a per-occurrence basis over a four-year risk period to The Hartford Fire Insurance Co. and certain affiliates and subsidiaries against U.S. hurricanes. The notes will be triggered by a hurricane in the covered area that generates an event index value in excess of $1.42 billion and will have an exhaustion amount of $1.62 billion. The 2010 Foundation Re deal have an initial trigger point of $1.203 billion and an exhaustion point of $1.403 billion, so this deal complements that by adding a layer of cover for losses above the exhaustion point. Hartford is cleverly using catastrophe bonds to cover much of the possible hurricane eventualities for themselves.

This deal is being marketed at an initial size of $100m which will test the cat bond investors appetite for U.S. wind risk this year. If the investment appetite is strong we think it’s likely this deal could upsize before completion.

The trigger is worked out based on insured personal and commercial property losses (including business interruption but excluding workers’ compensation losses) per state, multiplied by predetermined state and line-of-business payout factors. An annual reset will give Hartford the chance to update all payout factors for each state and line of business. AIR Worldwide are providing risk analysis, modelling and acting as calculation and reset agent. PCS data will be used to create the index-based industry-loss trigger.

Goldman Sachs are acting as structuring agent and lead manager on this transaction with GC Securities co-managing the deal. The collateral from the transaction will be invested in Treasury money market funds which are highly rated.

Standard & Poor’s have given the single tranche of (initially) $100m Series 2011-1 Class A notes a preliminary rating of ‘BB+’.

We’ll bring you more information on this transaction as it comes to market and you can read all about this and other catastrophe bonds in our Deal Directory.

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