Swiss Re has obtained USD 150 million protection for California earthquake risk through the Redwood Capital XI Ltd. catastrophe bond programme.
Swiss Re has entered into a transaction with Redwood Capital XI Ltd. (“Redwood XI”) to receive up to USD 150 million of payments in the event of a California earthquake in the covered area that meets specific trigger criteria. The transaction covers a one-year risk period ending on 31 December 2010. Redwood XI has in turn hedged this risk by issuing catastrophe bonds into the capital markets. Redwood XI is a special purpose vehicle with a flexible programme structure that will allow subsequent issuances of notes.
Swiss Re has a strong track record of securitising California earthquake risk, obtaining over USD 2.1 billion of protection through prior Redwood programmes since 2001.
Swiss Re’s Chief Underwriting Officer, Brian Gray, commented: “Swiss Re has developed a leading market position as a sponsor, underwriter and innovation leader. Our ILS expertise is part of our core offering to our clients and a fundamental piece of our own hedging strategy.”
The Redwood XI offering consists of one series of notes, rated “B1” by Moody’s.
Swiss Re Capital Markets acted as sole manager and bookrunner on the note issuance. The collateral for this issuance of Redwood XI notes consists of treasury money market funds. Risk modelling and analysis was performed by EQECAT, Inc.
Brian Gray concluded: ”The ILS market gained considerable momentum in 2009. More conservative collateral structures, price convergence with the reinsurance market, and the underlying value of diversification should further accelerate the ILS market in 2010.”
The Redwood XI notes were sold in a private placement pursuant to Rule 144A of the U.S. Securities Act of 1933, as amended, (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws; they may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
