Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Further details on the Ibis Re II Ltd. catastrophe bond


More details have emerged on the Ibis Re II Ltd. Series 2012-1 U.S. hurricane catastrophe bond, which is currently being marketed to investors, thanks to Standard & Poor’s preliminary rating report. We wrote about the transaction last week but had minimal details at the time, now much fuller information is publicly available.

The Ibis Re II Ltd. cat bond is being issued through a newly formed Cayman Islands domiciled SPV. The deal which has a preliminary size of $100m, split into two tranches of $70m Class A notes and $30m Class B notes, is designed to secure insurer Assurant Inc., and subsidiaries American Security Insurance Co., American Bankers Insurance Co. of FL, and Standard Guaranty Insurance Co., with three years of cover against certain U.S. hurricanes.

Assurant group companies will benefit from a source of fully-collateralized index and model-based risk transfer via a reinsurance agreement which provides protection against qualifying U.S. hurricane events on a per-occurrence basis for each of the classes of notes over the three year risk period. The hurricane coverage includes much of the U.S.’s hurricane exposed states and also Puerto Rico.

The Class A notes cover is for a pro-rata share of losses in excess of $1.05 billion (the Class A attachment level) up to $1.855 billion (the Class A exhaustion level), on a per-occurrence basis. The Class B notes will cover a pro-rata share losses above $610 million (the Class B attachment level) up to $1.05 billion (the Class B exhaustion level), also on a per-occurrence basis.

The trigger for calculation and measurement of the severity of an event and any associated  losses will be the Verisk catastrophe index reports which show insured personal line losses on a county level multiplied by predetermined county payout factors (weighting). This is the first time that the Verisk index has been used for cat bond trigger and calculation purposes, although Verisk are the parent company of PCS so it is not a completely unknown quantity.

The transaction can be extended by up to 24 months for loss development and reporting purposes and the attachment and exhaustion levels can be reset annually using up to date exposure information and the county payout factors to determine new attachment probabilities and expected loss. The initial probability of attachment for the Class A notes will be 2.33% and for the Class B notes 4.95%.

Risk modelling and calculation services are provided by AIR Worldwide for this deal. In their analysis they found that a hurricane the size of the 1992 hurricane Andrew could have triggered the Class A attachment point. One other historical event could have breached the Class A notes attachment point and two other historical hurricane events could have breached the Class B attachment point.

Collateral from the sale of the notes will be deposited in reinsurance trust accounts and invested in highly rated U.S. Treasury money market funds.

Standard & Poor’s have given the Class A notes a preliminary rating of ‘BB-‘ and the Class B notes a preliminary rating of ‘B-‘.

Full details on the Ibis Re II Ltd. catastrophe bond can be found in our Deal Directory and we’ll update you as the transaction comes to market. We’d expect this deal to upsize as $100m is fairly small for a U.S. hurricane cat bond, as long as investors are happy with the use of a new reporting service (Verisk) and the fact that four historical events could trigger the deal (which is more than in most cat bonds). We’ll keep you updated.

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