Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Swiss Re to sponsor new catastrophe bond Combine Re Ltd. which benefits two reinsureds


Yet another catastrophe bond is coming to market as what will be the ninth transaction of this busy 2012 begins marketing according to sources we’ve spoken with today. We don’t have a great deal of information at this stage but expect more details to become available over the next few days. Combine Re Ltd., which is coming to market for sponsoring reinsurer Swiss Re America, is said to be a first for the cat bond market as it combines two reinsured parties risks into a single deal and securitizes them in a single cat bond transaction.

That’s a pretty interesting concept and could allow reinsurers a lot of flexibility when tapping the capital markets for new sources of cover. The bundling of multiple reinsureds risks into a single cat bond would be very attractive to all of the global or major reinsurance companies.

In this new Combine Re transaction, Swiss Re America will be looking for $200m of cover to retrocessionally protect their reinsurance agreements with two insurers, although as is always the case that number could grow if the deal upsizes. Cover will be afforded on an annual aggregate basis and uses an indemnity trigger based on the ultimate net loss of the two reinsureds. The two reinsureds are Country Mutual Insurance Company and the North Carolina Farm Bureau’s mutual insurance arm.

Covered perils are U.S. hurricane, U.S. earthquake, U.S. severe thunderstorm and U.S. winter storm. Interestingly the deal is said to be split 50/50 in that it is designed to provide $100m of cover to each of the reinsureds. However clearly the North Carolina Farm Bureau is only at risk in North Carolina, where as Country Mutual is said to be receiving cover for all peril exposed U.S. States except for Florida and California (by excluding those two States this deal should still offer a level of diversification to investors). That means there is an interesting structure underlying this deal in the reinsurance agreements within the transaction.

The deal is split into three tranches we’re told, a $100m Class A tranche and two $50m Class B and C tranches of notes.

We hope to have more information on the Combine Re Ltd. cat bond in the coming days as details become available to us. This cat bond transaction will certainly be one to watch as it brings something new to the insurance-linked securities space which if accepted readily by investors could become a common way to structure a transaction.

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