January 24, 2006 by Canadian Underwriter
Swiss Re has successfully completed its first credit reinsurance securitization, the company recently announced on its Web site.
The company’s EUR 252 million (about Cdn$356 million) issue benefits Swiss Re by transferring credit insurance risk to the capital markets, thereby increasing Swiss Re’s capital efficiency.
John Fitzpatrick, head of Swiss Re’s financial services commented: “This is the first indemnity-based credit reinsurance securitization ever completed. The objective of the transaction is to achieve economic, regulatory and rating capital relief as part of Swiss Re’s overall objective to transfer risks to the capital markets and further improve capital efficiency.”
The risk transfer consists of a retrocession agreement between Swiss Re and Crystal Credit Ltd covering the aggregate losses to Swiss Re in excess of a Swiss Re first-loss retention. Crystal Credit will issue EUR 252 million of principal at-risk variable-rate notes for this purpose.
The underlying risk is linked to the claims and reserves that Swiss Re will have on its credit reinsurance business for the underwriting years 2006, 2007 and 2008. The indemnity trigger allows Swiss Re to achieve capital relief at minimal basis risk while providing the investor with the benefit of an actively managed credit insurance book over three years.
Peter Schmidt, the head of Swiss Re’s credit solutions division, believes “this securitization is interesting firstly because it is based on a highly-diversified underlying risk, in terms of geography and industry sectors. Secondly, it sets a new benchmark for the insurance sector in terms of capital and capacity management.”
The issue, which closed Jan. 13, 2006, was purchased by a variety of institutional investors. It consists of three separate tranches, with an average pre-tax coupon of three-month Euribor plus 3.93% per annum, paying quarterly, with a scheduled maturity of three years and a legal final maturity of 6.5 years.