The Crystal Credit transaction issued by Swiss Re to provide it with cat bond type credit reinsurance protection through securitisation seems to be destined to default. We’ve covered it a number of times (previous coverage here) over the last couple of years during which time it has been downgraded due to risk of default.
Now Moody’s Investors Service have placed two classes of Crystal Credit notes on review for possible downgrade. The €108m Class 2005-A Principal at Risk Variable Rate Notes due June 30 2012, B3 (sf) have been placed on review for downgrade. They were previously downgraded on March 3rd 2010 to B3 (sf) from Ba1(sf). The €81m Class 2005-B Principal at Risk Variable Rate Notes due June 30 2012, Caa2 (sf) placed on review for downgrade. They were previously downgraded on March 3rd 2010 to Caa2 (sf) from Caa1(sf).
Moody’s says the review has been prompted by continuing increases in losses from the ceding insurers. A recently reported aggregate loss figure of €769m is higher than Moody’s previous estimate of €735m. Based on this Moody’s expects the Class B notes to experience a higher loss than the current rating implies. It looks like they expect similar to occur to the Class A notes as further loss reporting and development for underwriting year 2008 happens.
The full release from Moody’s can be read here (registration required).