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Catlin confirms cat bond launch

Bermuda-based Catlin Group confirmed today (27 September) that it is to enter into a catastrophe swap agreement that would provide it with coverage of up to $200.25mn for global natural catastrophes.

The deal marks the first publicly rated collateralised debt obligation (CDO) of natural catastrophe exposures.

The bond issue, which was revealed in Insider Week on Monday, would protect Catlin from a series of catastrophes including US hurricanes, Californian, New Madrid and Japanese earthquakes, European windstorms and Japanese typhoons on a combination of parametric and indemnity triggers.

Catlin Bermuda will purchase the catastrophe swap from a special purpose vehicle, Bay Haven Limited, which will in turn issue to investors $200.25mn in three year Floating Rate Notes, providing the collateral for Bay Haven's obligations to Catlin Bermuda under the swap.

The swap will cover a three-year period with no payout from Bay Haven for the first three covered events. Thereafter Catlin will receive $33.375mn per event up to a maximum of six events and an aggregate limit of $200.25mn.

Stephen Catlin, chief executive of Catlin, said: "The pattern of natural catastrophes over the past several years has focused attention on how insurers and reinsurers will be able to respond to the increasing frequency and economic severity of these events. This transaction, when completed, will strengthen Catlin's ability to withstand claims arising from a series of severe natural catastrophes. Along with the steps Catlin has already taken to limit its exposure to natural catastrophe risk, the catastrophe swap will increase the security that Catlin provides to both policyholders and investors."

The bond issue will be brought to the securities market by ABN AMRO London and has been developed in conjunction with reinsurance broker Guy Carpenter and catastrophe modelling firm Risk Management Services.

Catlin said it expects Standard & Poor's to rate the notes between AA and BBB-.

Erik Manning, of the Insurance & Weather Derivatives Group at ABN AMRO, said: "For the first time, pension funds and other institutional investors will have the ability to invest in these near zero-beta investments, providing genuine investment portfolio diversity with the benefit of high investment grade ratings. Bay Haven has opened up the world of Insurance-Linked Securities to a whole new breed of investors."

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