Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

RMS provided risk analysis for Calabash Re III catastrophe bond


A few more details have come to light on the Swiss Re Calabash Re III deal through the press release from risk modelling agency Risk Management Solutions (RMS). The full press release is below.

Risk Management Solutions (RMS) has completed the expert modeling analysis in connection with the securities offering undertaken by Calabash Re III Ltd., a Cayman Island exempted company licensed as a Class B insurer. The notes sold in this offering provide $100 million of collateralized coverage against U.S. hurricane and U.S. earthquake over three years for Swiss Reinsurance America Corporation on behalf of ACE American Insurance Company and its affiliates. The program was solely structured and placed by Swiss Re Capital Markets Corporation.

This is the first ever catastrophe bond to provide investors with the full modeled Event Loss Table (ELT) for the transaction as part of the disclosure documentation. For every event in the RMS U.S. Earthquake and U.S. Hurricane models, investors are provided with the RMS event description, annual rate, and modeled index value.

“With access to the full event loss details, investors can quantify the exact marginal impact of Calabash III on their existing portfolios,” commented Peter Nakada, managing director of RiskMarkets, RMS’ dedicated insurance-linked securities (ILS) team. “The disclosure of this information is standard in reinsurance arrangements; by introducing it to cat bond transactions we’re leveling the playing field for investors, which will hopefully promote participation in this market.”

The trigger for the reinsurance arrangement is based on Swiss Re Capital Market’s patented “MITT” trigger (Modified Industry Trigger Transaction), whereby insured industry loss estimates from Property Claims Services are adjusted by the modeled share of industry loss based on the applicable portfolios. “As this transaction incorporates an element of modeled loss, investors would have been unable to generate an exact Event Loss Table on their own. Providing these details gives a level of transparency that in the past could only be achieved with a pure parametric or industry loss transaction,” commented Mr. Nakada. “ACE and Swiss Re have taken a critical step forward in the market. We know it’s appreciated in the investor community, and hope it sets a precedent for future modeled loss and indemnity transactions.”

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