Swiss Re are bringing a new catastrophe bond to market through a newly formed Cayman Islands domiciled issuer called Mythen Ltd. Mythen Ltd. is a program which will allow Swiss Re to issue future tranches of notes and we’re told by our sources that it is likely to take over from their Successor X series of cat bonds as that issuer is coming to the end of its life. In this first cat bond through Mythen Ltd. Swiss Re are seeking to sponsor three tranches of notes and targeting at least $150m in fully collateralized capital markets cover.
Mythen Ltd., named after Swiss Re’s head-office location on Mythenquai in Zurich, is an interesting multi-peril cat bond transaction with a unique structure, which should attract investors as it offers them some unique diversification opportunities. The deal, if successful, will provide Swiss Re with a three-year source of fully collateralized first and second event U.S. hurricane cover and European windstorm cover, all on an industry loss and per-occurrence basis. Second event U.S. wind is not a peril that is seen very often in the cat bond market, and with the U.S. hurricane season approaching we expect this to be in demand with investors which could help Swiss Re grow the transaction considerably.
Three tranches of Series 2012-1 notes are being marketed for issuance by Mythen Ltd., all are as yet unsized and all we know is that Swiss Re are targeting at least $150m in cover from this deal. Some details of the cover afforded by each tranche that Mythen Ltd. is set to issue can be found below.
The Class A tranche of notes provide cover for U.S. hurricanes on a per-occurrence basis, using PCS reported industry losses as a trigger and an index with an attachment point of 830 and an exhaustion point of 1,085. This tranche would attach on a first event basis.
The Class E tranche of notes provide cover for second and subsequent event U.S. hurricanes on a per-occurrence basis, again using PCS reported losses as a trigger and an index with an activation point of 182, an attachment point of 161 and an exhaustion point of 200. The Class E notes need two hurricanes to occur, and qualify as events, for any losses to occur.
The Class H tranche of notes are multi-peril and cover European windstorms on a first event per-occurrence basis, using PERILS industry losses as a trigger and an index with an attachment point of 594 and an exhaustion point of 759. They also cover second and subsequent event U.S. hurricanes on a per-occurrence basis using PCS reported losses and an index with an activation point of 350, an attachment point of 329 and an exhaustion point of 376. So this tranche of notes need either one European windstorm or two U.S. hurricanes to qualify within a year for any losses to occur.
Mythen Ltd. has a relatively complex structure as cat bonds go, but the cover it will afford Swiss Re is well designed. Class E is the lowest level of cover, which requires two hurricanes in the same year causing lower losses to trigger it. Above that tranche the Class H notes kick in, again needing two U.S. wind events causing more losses than a Class E trigger event or a single European windstorm to trigger them. At the top is a one-shot tranche of U.S. wind notes which require a much larger, single loss event to trigger them. It’s a clever design and meant that Swiss Re could slot the European windstorm cover in at the most appropriate level to complement other covers. The whole Mythen Ltd. structure should complement their reinsurance and other cat bonds nicely.
AIR Worldwide will be providing risk modelling for this transaction. Collateral from the sale of the Mythen Ltd. notes will be invested in IBRD notes and pay a coupon above their return for each tranche.
This Mythen Ltd. (or Mythen Re as it is likely to be discussed) catastrophe bond will provide some unique opportunities to investors seeking to acquire exposure to U.S. wind. We suspect this deal may become oversubscribed.