Standard & Poor’s Ratings Services (S&P), the most active credit rating agency for catastrophe bond issues, has affirmed the ratings of the $300m Nakama Re Ltd. (Series 2013-1) Japan earthquake catastrophe bond, after undergoing its annual reset.
The Nakama Re 2013-1 cat bond was sponsored by Japanese mutual cooperative insurer Zenkyoren, a regular user of the insurance-linked securities (ILS) market for it reinsurance programme which is one of the largest ceded in the world. Nakama Re 2013-1 was the first indemnity triggered cat bond sponsored directly by Zenkyoren, as its previous deals had been parametric in nature.
Each year after issuance, at the end of a risk period, every outstanding catastrophe bond is scrutinised and analysed by S&P, or by the rating agency responsible for that deal, to assess whether the probability of attachment remains within the expected range specified in the deals offering documentation and within the bounds expected of its rating.
This analysis occurs during the annual reset and also takes into account any qualifying losses suffered to date by a cat bond, any changes to the underlying portfolio of risk as well as any difference in expectations, or perceived risk, for the cat bond due to the shortened time to maturity.
In the case of Nakama Re 2013-1 S&P said that; “The probability of attachment was reset to a percentage consistent with the transaction documents and the current rating.”
S&P also reviewed the creditworthiness of the ceding company, National Mutual Insurance Federation of Agricultural Cooperatives (Zenkyoren), as well as the rating on the collateral that, unless a covered event occurs, would be used to redeem the principal on the redemption date.
As a result of the assessment, S&P affirmed its ‘BB+(sf)’ rating on the Nakama Re Ltd. Series 2013-1 cat bond notes.