Swiss Re Insurance-Linked Fund Management

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Montana Re Ltd. catastrophe bond coming soon from Flagstone Re


Flagstone Re is readying a catastrophe bond transaction for the market called Montana Re Ltd. We mentioned this deal after writing about its existence the other day, now details are emerging we can bring you up to speed. Montana Re is a Cayman Islands based SPV set up to issue the notes from this $120m deal. Flagstone Reassurance Suisse S.A., the ceding reinsurer, is seeking to protect itself from losses caused by U.S. hurricanes and earthquakes for three years. The deal is structured in two tranches of $60m and is expected to complete towards the end of November.

The Class A notes of Montana Re are exposed to losses above $491m from U.S. hurricanes in the Atlantic east and the Gulf coasts, including Florida. Class B notes are exposed to losses above $342m from both U.S hurricanes and earthquakes. Standard and Poor’s have rated the Class A notes ‘BB-‘ and the Class B ‘B-‘.

Losses will be triggered by modified PCS index-based industry losses (modified to account for state payout factors), so based on the sum of PCS reported insured personal property (including auto) and commercial lines losses per state multiplied by state weighting factors.

This deal uses an asset repurchase method of collateral (quite similar to Eurus II) in that Goldman Sachs International (GSI), as repurchase counterparty, will enter into two Global Master Repurchase Agreements (GMRA) with Montana Re, the size of which will equal the outstanding unimpaired principal of the Class A and B notes. GSI sells security assets to Montana Re in return for cash, with an obligation to repurchase the securities at maturity. The amount of securities held will be kept overcollateralized and market value will be marked on a daily basis by custodian Bank of New York Mellon. There are strict guidelines as to what securities can be utilised indicating that they will be highly rated and have little to no correlation with the financial markets.

The transaction can extend by up to 18 months for a hurricane event and 24 months for an earthquake event to allow for loss development and reporting.

As ever we have published these details and more in the Artemis Deal Directory.

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