Zurich Re successfully sponsors three-peril catastrophe bonds
Zurich/ New York/ Chicago, July 30, 2001. - Zurich Financial Services Group, through its reinsurance unit, Zurich Re, today announced the successful private placement of USD 161,856,000 of risk-linked securities: USD 60,000,000 Class A-1 Notes, USD 97,000,000 Class A-2 Notes and USD 4,856,000 of Preference Shares. The transaction provides Zurich Re with fully collateralized protection against low-frequency, high-severity hurricane and earthquake exposures in the United States, as well as European windstorm.
The innovative structure brings Zurich Re increased flexibility in its reinsurance strategies in respect of clearly defined catastrophe exposures. The securities, which have an initial maturity of three years, were issued by Trinom Ltd., a Bermuda-based special purpose company. Zurich Insurance Company is the counter party to Trinom. Zurich Re was responsible for project management and structuring, which was done in conjunction with Morgan Stanley and Aon Capital Markets who underwrote the issue as joint lead managers. Risk modeling and analytical services for this transaction were provided by Applied Insurance Research using its proprietary hurricane, earthquake and windstorm models.
The issue was structured in a synthetic manner, coverage is based on modeled losses on a notional portfolio of Zurich Re. The notional portfolio was structured by Zurich Re so as to match a specific book of its European windstorm, California earthquake and US East Coast hurricane exposure. "This transaction underscores Zurich Re's commitment to offering a wide range of creative and innovative solutions to help our internal and external clients attain their business objectives," said Dirk Lohmann, CEO Zurich Re. "In addition to the benefits provided to Zurich Insurance Company, this securitization allows investors to participate in a well-balanced multi-peril transaction, without being exposed to uncertainties surrounding the data quality of the underlying exposures or the accuracy of the model's damage functions and loss calculation methodologies. It also accomplishes several of our strategic objectives, including developing an additional source of fully collateralized reinsurance capacity and stabilizing our reinsurance protection for up to three years by providing multiple event coverage at pre-agreed conditions. This is especially important after a catastrophic event as the insurance industry is exposed to the market's price volatility and post-event credit risk issues".
