Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Multicat Mexico 2009 Ltd. – further details


As usual further details on the latest catastrophe bond to be marketed, Multicat Mexico 2009 Ltd., continue to come to light. Through a combination of industry sources and published data we have gleaned more details on the latest cat bond to hit the market this year.

Multicat Mexico 2009 Ltd. (utilising a Cayman islands based SPV) is being sponsored by The Fund for Natural Disasters of Mexico (FONDEN). The transaction is valued at $250m and is due to complete within the next week or two. FONDEN have entered into an insurance contract with Mexican state-owned insurer Agroasemex S.A. so officially they will be cedent. Swiss Re are acting as a counterparty to the deal and will reinsure Agroasemex to enable them to pay any claims placed by FONDEN for qualifying catastrophes. Swiss Re Capital Markets and Goldman Sachs are co-lead managers on the transaction. AIR Worldwide are providing risk modelling services and acting as calculation agent. Munich Re have been advising on the deal and Bank of New York Mellon are trustee.

Agroasamex and therefore FONDEN will receive multi-year protection against certain earthquakes and both Pacific and Atlantic hurricane events through Multicat Mexico 2009. The deal is structured in four classes of notes, Class A notes provide the earthquake risk cover and losses will be calculated by AIR from qualifying quakes within three zones around Mexico. Classes B, C and D provide hurricane cover against qualifying events within two Pacific and one Atlantic zones near Mexico. The transaction utilises a parametric loss trigger, based on parameters reported by the USGS and NHC. To trigger the Class A notes an earthquake must meet certain parameters of strength and depth (Zone A above 7.9, zone B above 8.0 and zone C above 7.4 Mw. All must be at a depth of 200km or less). The Class B and C notes are exposed to Pacific hurricanes where minimum central pressure must drop below 944mb for a storm to qualify. Class D which is exposed to Atlantic hurricanes must see a storm with a minimum central pressure of 920mb or lower.

Collateral is invested in U.S. funds which must hold direct government obligations such as treasury bills which are AAA rated not subject to a holding tax. If that wasn’t possible then they must invest in other funds with similarly high rated investments. We don’t know at this time whether reporting on the health and value of the collateral investments will be regular.

The four tranches of notes have been issued as the first issuance of this program, leaving it open for further notes to be brought to market in the future. The risk period will be from October 2009 to October 2012 with a possible extension of two three-month periods. The four tranches of notes have received preliminary ratings from S&P, tranches A,B and C are all rated ‘B’ while tranche D is ‘BB-’.

These details will be copied to the Artemis Deal Directory shortly where you can read details like this on most catastrophe bonds since the markets inception.

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