Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Topiary Capital Ltd. catastrophe bond placed under review by A.M. Best


A.M. Best has announced that they are placing the $200m Topiary Capital Ltd’s Series 2008-1 Class A notes under review with developing implications in the wake of the earthquake disaster in Japan. The catastrophe bond notes, issued on behalf of Platinum Underwriters and due on August 5th 2011, were put on Creditwatch by S&P last week as well.

The cat bond notes issued by Topiary Capital, which provide Platinum Underwriters with $200 million in second and subsequent event coverage for qualifying U.S. hurricane, U.S. earthquake, Europe windstorm and Japan earthquake events over a three-year period (August 1, 2008 to August 5, 2011), are currently being assessed by calculation agent Risk Management Solutions to see whether the Japan earthquake was a qualifying event.

If the events on the 11th March in Japan are deemed to qualify as a triggering event under the terms of the Topiary Capital deal then the cat bond will be at risk of loss should any other events qualify over the remainder of its term (to August 5th). If that happened it would raise the risk of loss significantly for investors and it’s likely that both S&P and A.M. Best would downgrade the notes.

Topiary Capital Ltd. is the first of the catastrophe bonds which have exposure to the events in Japan to receive ratings notifications from the ratings agencies. It could take a while for the final outcome to be known for all of these catastrophe bonds but it is beginning to seem likely that there will at the least be some ratings changes and at the worst some losses experienced.

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