Friday, May 14, 2010

AIG Buys $425 Million in Protection With Cat Bonds

As reported on Bloomberg:
American International Group Inc.’s property insurer bought $425 million of protection from U.S. hurricanes and earthquakes through catastrophe bonds in the firm’s first purchase of reinsurance through capital markets. The securities involve two portions, one for $175 million and the second for $250 million, New York-based AIG’s Chartis unit said today in a statement. Both mature in 2013...

The purchases, through a special-purpose entity called Lodestone Re, reflect AIG’s “pursuit of increasing financial flexibility and enhancing our risk management,” Kristian Moor, chief executive officer of Chartis, said in the statement.

The $250 million slice will pay 8.25 percentage points more than three-month Treasury bills. The second yields 6.25 points above the benchmark. AIG divested its majority stake in reinsurer Transatlantic Holdings Inc. by selling shares in the past year.

And here's the Chartis press release:
Chartis today announced that it has entered into a reinsurance transaction with Lodestone Re, which will provide $425 million of protection to Chartis against U.S. hurricanes and earthquakes. This represents a substantial increase from the $250 million of protection originally sought by Chartis. To fund its obligations to Chartis, Lodestone Re issued a catastrophe bond in two tranches -- $175 million of Class A notes and $250 million of Class B notes.

The transaction closed on May 12, 2010 and provides Chartis with fully collateralized coverage against losses from U.S. hurricanes and earthquakes on a per-occurrence basis until May 2013 using an index trigger with state-specific payment factors. Risk analysis for the transaction is based on Risk Management Solution's (RMS) Hurricane Model Version 9.0 and RMS North America Earthquake Model Version 9.0.

Kristian P. Moor, President and Chief Executive Officer of Chartis, said "As part of our first effort to obtain reinsurance coverage supported by capital market instruments, this transaction represents another important milestone in Chartis' pursuit of increasing financial flexibility and enhancing our risk management capabilities."

Lodestone Re is a special purpose insurer, incorporated under the laws of Bermuda, which has established a program structure enabling potential future catastrophe bond issuances.

No comments: