Posted on 05 Jan 2010
Swiss Re has entered into a transaction with Redwood Capital XI Ltd. ("Redwood XI") to receive up to $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 program structure that will allow subsequent issuances of notes.
Swiss Re has a strong track record of securitizing California earthquake risk, obtaining over $2 billion of protection through prior Redwood programs 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 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. With the closure of Redwood XI, Swiss Re Capital Markets solidified its standing as the number one lead manager for ILS transactions in 2009. The collateral for this issuance of Redwood XI notes consists of treasury money market funds. Risk modeling 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.”