Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

More details on the Green Fields II Capital catastrophe bond from Groupama


We now have further details for you on the recently launched Green Fields II Capital Ltd. (Series 2013-1) catastrophe transaction. The Green Fields II Capital cat bond sees French insurer Groupama looking to utilise the capital markets to source an expanded and extended source of French windstorm reinsurance coverage.

Ratings agency Standard & Poor’s has now published its preliminary rating on the notes along with a pre-sale report which provides more detailed information on the structure and terms of the cat bond transaction. The Green Fields II Capital deal will provide very similar cover to Groupama’s still in-force Green Fields Capital Ltd. cat bond, which matures at the end of 2014.

So, Green Fields II Capital Limited is an Irish domiciled special purpose vehicle, which will make this deal the first Irish domiciled cat bond of 2013.

While Groupama is the ultimate reinsured beneficiary of the cover the cat bond provides, the sponsor or counterparty to the risk transfer contract is reinsurer Swiss Re who in turn provide Groupama with reinsurance protection. The notes that are sold under this Green Field II Capital cat bond will be used to collateralize that reinsurance agreement between Swiss Re and Groupama.

Green Field II Capital will provide reinsurance protection through the risk transfer contract to Swiss Re, and ultimately Groupama, on a per-occurrence basis against losses from French windstorms over a 3.5 year risk period from July 2013 until December 2016. The single tranche of Class A notes will be exposed to losses from windstorms affecting the covered area of France and Corsica.

The transaction will see a single tranche of Series 2013-1 Class A notes issued, which has a preliminary size of €150m, which makes it the first Euro denominated catastrophe bond of 2013. The notes are exposed to French windstorm risks on an industry loss and per-occurrence basis, with the trigger being a PERILS AG industry loss index.

The industry loss data is on a Cresta zone and line of business level. The transaction will provide cover for some of Groupama’s residential, commercial, industrial and agricultural books of business across all of France and the French island of Corsica. The transaction uses an index trigger with an attachment level of 573m index points and an exhaustion level of 745m index points.

Much of the risk is in western France, as you might expect given European windstorms tendencies to travel in across the Bay of Biscay before hitting west or northwest France. By line of business, agricultural and residential lines make up the bulk of the expected losses, accounting for 84% of the first years expected loss.

The single tranche of notes have an attachment probability of 1.08%, an exhaustion probability of 0.66% and an expected loss of 0.85%. The notes are being marketed with a coupon guidance price range of 2.75% to 3.25%.

The transaction features a variable reset mechanism, which allows for the one year probability of attachment to be reset to a maximum of 1.6%. That could mean that the interest spread paid to investors would be changed, if the counterparty felt it needed protection at a different level in its reinsurance tower, meaning investors would be compensated for an increased, or reduced, risk of attachment.

Green Fields II Capital will deposit the proceeds from the sale of the notes into a separate collateral account. It will then invest the collateral in European Bank for Reconstruction and Development Notes which are putable on the defined payment dates.

We understand that when the risk modeller for this cat bond, RMS, ran historical storms through its model to analyse the potential for the notes to be triggered, none of the historical windstorms reached the index trigger point. We’re also told that simulated modelling showed that it could take a significant windstorm loss in France to breach the trigger on this deal, hence the relatively low coupon.

Standard & Poor’s assigned its ‘BB (sf)’ preliminary issue credit rating to the Series 2013-1 class A notes to be issued by Green Fields II Capital Ltd.

Update: Green Fields II Capital almost doubled in size and its pricing dropped while marketing.

Read our other article when we announced the launch of this cat bond here. Full details are in our catastrophe bond Deal Directory and we will update you further as Green Fields II Capital Ltd. (Series 2013-1) comes to market.

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