Standard & Poor’s have today lowered their rating on Crystal Credit, a securitization transaction structured similarly to a catastrophe bond. Crystal Credit was issued by Swiss Re in 2006 to provide themselves with indemnity against losses on their credit reinsurance portfolio. S&P now say the notes will likely be triggered due to increasing claims and losses affecting Swiss Re. The deal totalled €252 at the time of launch.
Losses to Swiss Re’s credit reinsurance business are fast approaching the point where the deals Class B notes could be impacted and investors principal be lost.
Even if this deal sees a total loss we don’t expect it to affect investor confidence in the cat bond market. Shoring up credit over the last few years was never going to be an easy thing to make a success of given the state of the credit markets themselves and extent of losses being experienced.