RMS Pioneers New Approach to Modeling Indemnity-Catastrophe Bonds for Tradewynd Re Ltd.
Investors get multiple views of risk plus deeper portfolio insights
Newark, Calif. -
December 20, 2013 -
RMS, the world's leading catastrophe modeling firm, today announced that the company has worked with AIG and Swiss Re to pioneer a new approach to modeling indemnity catastrophe bonds with the issuance of Tradewynd Re Ltd Series 2013-2 notes sponsored by AIG.
This is the second catastrophe bond to be issued from Tradewynd Re and the first ever to make the exposure data underlying the catastrophe bond transaction available to the three main modeling firms to analyze independently. Typically data is privy only to the firm retained to produce the risk analysis included in the offering documentation. The delivery of exposure data to all modeling parties provides each firm the opportunity to present investors with a more accurate representation of the risk of the bond under multiple views.
"Not only did investors get RMS' view of commercial and high-end residential risk on this bond, they also got unprecedented insights into the exposures driving the risk," said Peter Nakada, managing director of RMS capital markets.
"The market voted enthusiastically in favor of this approach, as evidenced by substantially tighter spreads and larger issuance than the prior Tradewynd bond with a nearly identical risk profile," Nakada added. "Going forward, we will be happy to do detailed modeling for all indemnity bonds, even when we are not selected as the modeling agency providing the risk analysis for the offering documentation."
RMS conducted the risk analysis using its suite of hurricane and earthquake models, which includes the RMS Industrial Facilities Model, RMS Offshore Platform Hurricane Model and the RMS North Atlantic Hurricane Storm Surge Model.
Tradewynd Re reinsures $400 million of AIG's catastrophe risk from named storms impacting the United States and Caribbean, as well as earthquakes impacting the United States and Canada. Tradewynd Re raised funds for such reinsurance through the issuance of its Series 2013-2 notes to capital markets investors. High levels of demand for the notes allowed AIG to upsize the transaction from $100 million to $400 million, while investors were willing to accept a risk premium 125 basis points lower than the equivalent tranche to the prior issuance, Tradewynd Re Ltd Series 2013-1.
RMS models and software help financial institutions and public agencies evaluate and manage catastrophe risks throughout the world, promoting resilient societies and a sustainable global economy.