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Moody’s expects Japan quake to cause total loss for Muteki Ltd. catastrophe bond


Rating agency Moody’s has downgraded the notes of catastrophe bond Muteki Ltd. today as they believe the deal will be triggered (which we suggested was possible earlier) and they expect a total loss of principal to investors in the transaction. The $300m Series 2008-1 deal provided protection to Munich Re for certain reinsurance contracts they entered into with Zenkyoren the National Mutual Insurance Federation of Agricultural Cooperatives of Japan.

Moody’s has studied the seismic data that the Kyoshin K-Net earthquake data network has made available and have estimated the parametric index value for the Japanese earthquake. Based on Moody’s calculation, they expect that losses to Muteki Ltd. will breach the attachment level and reach the exhaustion level, thus resulting in a total loss of principal to the Class A noteholders.

There has been some confusion over the data from K-Net as some stations were damaged and others have not reported data yet. However, Moody’s says that the data they have made their estimation with is up to date today, 31st March, and is based on the readings of 693 out of the roughly 1,200 recording stations in Japan. As a result of their study Moody’s are sure enough that the deal has been triggered to downgrade the notes.

Moody’s have downgraded the $300m of Class A notes issued by Muteki Ltd. from ‘Ba2’ to ‘C’. They say they will continue to assess the full impact of the earthquake on the rating of Muteki Ltd. once they get full data from K-Net, an event notice from the counterparty in the deal and an event report from the risk modelling agency for the deal. However, it looks safe to assume that catastrophe bond investors in Muteki Ltd. are facing a significant, if not total loss.

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