Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Vega Capital catastrophe bond from Swiss Re the latest to be upgraded


Movements in catastrophe bond ratings are getting more regular recently, a second catastrophe bond has had its ratings upgraded this week. Following on the heels of Merna Re which had it’s ratings upgraded and affirmed earlier this week, Vega Capital has become the latest transaction to be reassessed by rating agencies and have its notes upgraded.

Vega Capital, a $150m multi peril deal sponsored by Swiss Re in June 2008, has had both its Class A and B notes series 2008-1 ratings raised by Standard & Poor’s. The ratings on this deal have been increased due to the fact that for the noteholders to face a loss there needs to be at least four triggered risk events over the three year duration of the deal, so far none have occurred after a years duration. This reduces the likelihood of loss significantly as the risk of attachment has decreased significantly. The Class A notes have been given a new rating of ‘A’ (from ‘A-‘) and the Class B are now ‘BBB+’ (from ‘BBB’).

While these ratings actions seem minor they all contribute to increasing the confidence of investors in catastrophe linked insurance securities. Seeing transactions becoming more transparent through improved collateral arrangements while at the same time seeing deals increase in rating due to reduced risk of attachment combine to create a very attractive asset for investors seeking to diversify away from the still struggling financial markets.

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