Swiss Re is preparing a novel USD200 million multi-peril catastrophe bond that is expected to hit the market by early June. It will be the first CAT bond to offer investors exposure to four separate categories of risk, according to CAT bond experts. The bond, which will have a three-year maturity, will cover Japanese and California earthquake risk, New Madrid, Mo. earthquake risk, European wind storm risk and Atlantic hurricane risk, according to a CAT bond professional in New York.
Investors will be able to buy into the bond through five tranches. There is a USD100 million tranche for Atlantic hurricane risk and USD25 million tranches for each of the other risks, plus an additional USD25 million tranche with exposure to all the risks. Most CAT bonds are only referenced to one or two risks, the professional added.
The offering will be sold through Pioneer, a special purpose reinsurance vehicle, but it is still to be priced. Judy Klugman, senior v.p. at Swiss Re Capital Markets, the broker/dealer arm of the reinsurance company in charge of marketing CAT bonds, declined comment.
The issue will be linked to a parametric measure, which is a synthetic system based on multiple studies of the potential risks in each of the categories. For example, if the wind hits a certain speed in Europe Swiss Re will receive a pay out from the investors regardless of the damage, said the CAT bond expert. The alternatives are index-based or indemnity-based deals, which are linked to industry-wide losses or specific losses.
