Swiss Re Insurance-Linked Fund Management

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Standard & Poor’s lowers ratings on six catastrophe bonds


Yesterday Standard & Poor’s took action on six natural catastrophe bonds and lowered their ratings. All the bonds were deals placed during 2007 and 2008.

Caelus Re Ltd. from Nationwide Mutual, Carillon Ltd. from Munich Re, East Lane Re Ltd and East Lane Re II Ltd. both from Chubb Group and Residential Re 2008 Ltd. from USAA have all been rated down a notch. S&P say this is to reflect the adjusted probability of attachment that resulted from applying S&P’s new criteria after the annual reset reports came out. S&P don’t go into any more detail than that, so we can only assume that either their rating methodology is now stricter than when these deals originally came to market or that there are questions about the collateral behind the deals.

Additionally S&P placed four tranches of Residential Re 2007 Ltd. on CreditWatch Negative while they are waiting for updated occurrence and aggregate exceedence probability curves from AIR Worldwide. They will resolve the credit watch situation once they have that information, although it is looking likely they will face a single notch downgrade too due to the new criteria they are being rated against.

It seems likely that all of these rating actions are purely down to the changes in rating criteria that S&P have applied this year. You can read abolut all of these catastrophe bond deals in the Artemis Deal Directory.

Details of the rating changes are below:

Ratings Lowered

To From
Caelus Re Ltd. Series 2008-1 Class A BB BB+
Carillon Ltd. Series 2 Class E B- B
East Lane Re II Ltd. Series 2008-1 Class C CCC+ B-
East Lane Re Ltd. Series 2007-1 Class B BB BB+
Residential Reinsurance 2008 Ltd. Class 1 BB- BB
Residential Reinsurance 2008 Ltd. Class 2 B- B

Ratings Placed On CreditWatch Negative

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To From
Residential Reinsurance 2007 Ltd. Class 2 B+/Watch Neg B+
Residential Reinsurance 2007 Ltd. Class 3 B/Watch Neg B
Residential Reinsurance 2007 Ltd. Class 4 BB+/Watch Neg BB+
Residential Reinsurance 2007 Ltd. Class 5 BB+/Watch Neg BB+
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