Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

New Calypso Capital Ltd. European windstorm catastrophe bond launched for AXA


French insurance group AXA, through their AXA Global P&C subsidiary, are returning to the catastrophe bond market for European windstorm coverage with another issuance under their Calypso Capital Ltd., Republic of Ireland domiciled special purpose vehicle. Almost a year ago, Calypso Capital Ltd. Series 2010-1 was issued covering the same Euro windstorm risks and at completion upsized significantly to give AXA €275m of cover. Confirming their confidence in the cat bond market AXA are now seeking to issue a Series 2011-1 tranche of notes through Calypso Capital.

This new cat bond from AXA see’s them looking for €100m of industry loss-based cover on a per-occurrence basis for some of their European windstorm exposures over a three-year risk period from 1st January 2012 until 31st December 2014.  Interestingly that means a period where the deal will not be on risk from the date it completes later this month until the 1st January, so AXA are lining up this cover in advance and to complement last years cat bond.

The notes issued by Calypso Capital in this Series 2011-1 issuance will be exposed to windstorms in Belgium, Denmark, France (excluding French overseas territories), Germany, Ireland, Luxemburg, the Netherlands, Norway, Sweden, Switzerland, and the UK. This deal provides AXA with broader cover than last years Calypso Capital Series 2010-1 cat bond as it didn’t include windstorm risks in Norway and Sweden.

Swiss Re Capital Markets are arranging this cat bond transaction. EQECAT’s Europe windstorm model will be used for this cat bond deal and EQECAT are calculation and reset agent. PERILS AG are the reporting agency using their European windstorm industry loss data.

The deal covers events above a CRESTA and line-of-business weighted industry loss value of €1.5 billion on an occurrence basis, up to a limit of €1.9 billion. There is an optional annual reset which allows for AXA to request that the CRESTA zone payout factors by line of business and currency conversion factors can be amended. EQECAT will reset attachment and exhaustion points accordingly each year to ensure that the one year modelled attachment and loss probabilities never get higher than the level they are initially set at. This ensures investors don’t see an increase in loss probability during the tenure of the cat bond.

When a European windstorm event occurs, AXA will notify EQECAT who will then get the necessary data from PERILS to enable  them to determine whether a covered event has occurred, create an event index and calculate a loss value if the windstorm does qualify under the terms of the cat bond contract. The modelling for the transaction shows that none of the major European windstorms experienced in the last few decades would have qualified as an event as they would not have generated a sufficiently high index value.

Collateralization will be achieved through the use of a collateral account and purchase and investment of European Bank for Reconstruction and Development (EBRD) floating-rate notes with the proceeds from the sale of the class A notes that Calypso Capital will issue.

Standard & Poor’s have given the single tranche of Series 2011-1 Class A notes to be issued by Calypso Capital Ltd. a preliminary rating of ‘BB-‘.

Details of this cat bond have been added to our Deal Directory. We’ll update you as it comes to market or as any further details emerge. It will be interesting to see whether this transaction is upsized as insurance-linked securities investors we speak with have a strong appetite for a diversification opportunity such as this. It’s likely that AXA could double or more the size of this cat bond if they wanted to.

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