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Insurance-Linked SecuritiesConsistency and Confidence 2011
Aon Benfield Securities, Inc. and Aon Benfield Securities Limited (collectively, “Aon Benfield Securities”) provide insurance and reinsurance clients with a full suite of insurance-linked securities products, including catastrophe bonds, contingent capital, sidecars, collateralized reinsurance, industry loss warranties, and derivative products.
As one of the most experienced investment banking firms in this market, Aon Benfield Securities offers expert underwriting and placement of new debt and equity issues, financial and strategic advisory services, as well as a leading secondary trading desk. Aon Benfield Securities’ integration with Aon Benfield’s reinsurance operation expands its capability to provide distinctive analytics, modeling, rating agency, and other consultative services.
Aon Benfield Inc., Aon Benfield Securities, Inc. and Aon Benfield Securities Limited are all wholly-owned subsidiaries of Aon Corporation. Securities advice, products and services described within this report are offered solely through Aon Benfield Securities, Inc. and/or Aon Benfield Securities Limited.
Foreword
I am confident you will find the fourth annual Aon Benfield Securities review of the insurance-linked securities (ILS) market to be of great value. As with all our research, we offer an authoritative review and analysis of the asset class, and publish this and our quarterly reviews as a reference for the ILS market.
In the year ending June 30, 2011, despite several events affecting the global reinsurance market generally, the ILS market proved resilient as a source of risk transfer capacity. Our report details the market activity in this 12-month period, the events affecting the market, an overall market perspective, and a positive outlook for the future.
Specifically, this 2011 edition offers:
• Our comprehensive review of the catastrophe bond market and the drivers affecting the market;
• Our exclusive Aon Benfield ILS Indices;
• A review of investor activity;
• The impact of natural and economic events on the ILS market;
• A discussion with Risk Management Solutions; and
• Our perspective on diversifying perils.
Inside, we also offer an initial update on the developing implications of the downgraded U.S. sovereign credit rating and global economic pressures. Based on events at the time this report is being prepared, we have included our assessment of the impact on collateral management in ILS transactions.
At a time when we have experienced global catastrophes (as reported herein), we offer our heartfelt thoughts and prayers to those affected. In our business, we work with the probabilities and effects of natural disasters on a daily basis, and our discussion is not intended in any way to minimize the personal impacts of these catastrophes.
We appreciate the positive feedback our research has generated. As we continue to enhance the overall understanding of this important market, I welcome your thoughts and suggestions.
Paul SchultzPresident, Aon Benfield Securities
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Contents5 Aon Benfield Securities Annual Review
of the Catastrophe Bond Market
14 The Aon Benfield ILS Indices
16 The Buy Side
21 ILS-Related Markets
24 U.S. Perils
32 Diversifying Perils
40 An Interview with Peter Nakada, Managing Director of RiskMarkets, Risk Management Solutions
44 Appendix I Catastrophe Bond Issuance Statistics
50 Appendix II ILS Market Transaction Summary
68 Appendix III Summary of Sidecar Issuance
Insurance-Linked Securities 2011
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Aon Benfield Securities Annual Review of the Catastrophe Bond MarketFor the 12 months ended June 30, 2011, the Insurance-Linked Securities (ILS) market again demonstrated its consistent strength and provided sponsors with an attractive alternative to complement their traditional reinsurance purchases. Two stories emerged in the last 12 months:
• A healthy and growing market in the first nine months capped by a very active issuance calendar in the fourth quarter of 2010 and the first quarter of 2011, and
• A market interrupted by model changes and natural catastrophes in the second quarter of 2011.
Overview
Despite the continued confidence of both sponsors and investors, along with steady issuance, outstanding bonds on risk declined over the 12 months ending June 30, 2011. The annual issuance volume was only marginally down at $4.4 billion, from $4.7 billion for the same period in 2010. The total bonds on risk as of June 30, 2011, however, finished at $11.5 billion, down almost $1.7 billion from the previous June 30. The overall decline was caused by the interruption of issuance in the second quarter of 2011, as well as large maturities of catastrophe bonds issued in 2007 and 2008. In all, the catastrophe bond market has seen $37.6 billion of cumulative issuance since 1996, demonstrating its importance as a strategic and efficient risk management tool.
Outstanding Catastrophe Bond Volume, 2001-2011 (Years ending June 30)
Source: Aon Benfield Securities
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
20112010200920082007200620052004200320022001
$ M
illio
ns
PropertyOutstanding
Life / HealthOutstanding
CumulativePropertyBonds
TotalCumulativeBonds
2,075 2,589 3,0053,876
4,7416,608
12,911
16,155
13,249 13,16711,504
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Issuance in the 12 months ending June 30, 2011 was overshadowed by two major factors, which slowed the growth of the ILS market. First, in 2011, Risk Management Solutions (RMS) completed major updates of its U.S. Hurricane Model and Europe Windstorm Model in February and July, respectively. Both updates are explained in more detail below (see “Market Drivers • RMS”). The RMS changes came after AIR Worldwide Corporation (AIR) had updated its models for the same risks in the third quarter of 2010. Even at time of publication, nearly six months after RMS issued version 11.0 of the U.S. Hurricane Model, sponsors and investors alike are still working to thoroughly understand the changes.
Second, on March 11, 2011, a mega-earthquake and tsunami, known as the Great East Japan Earthquake, struck the northeastern coast of Japan. This and other natural events, described in detail below (see “Natural Events Affecting the ILS Market”), led to a brief pause in the ILS market as both sponsors and investors assessed their impact. During this period, some investors also took time to rebalance their portfolios.
Transaction Review
Twenty-four transactions totaling $4.4 billion of issuance (including four deals from the life and health sector) closed during the 12-month period ending June 30, 2011, compared to 21 transactions over the same period in the prior year. U.S. hurricane risk continued to dominate the market, with 53 percent of natural catastrophe issuance dedicated to this peril. The proportion of catastrophe bonds covering U.S. earthquake risk declined from 29 percent for the year ending June 30, 2010 to 17 percent for the same period in 2011. By comparison, Europe windstorm transactions increased from 9 percent of issuance in the 12-month period ending June 30, 2010 to 21 percent for the same period in 2011. U.S. earthquake risk and Europe windstorm risk now price alike for a given level of risk. Life and health issuance activity rebounded with $525 million of issuance, the second largest issuance year following $1.1 billion for the year ending June 30, 2007.
Catastrophe Bond Issuance By Year (Years ending June 30)
Source: Aon Benfield Securities
4,6614,382
1,780
5,914
8,145
3,279
1,4991,144 998 1,011
1,958
$ M
illio
ns
PropertyIssuance
Life / HealthIssuance
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
20112010200920082007200620052004200320022001
Insurance-Linked Securities 2011
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Traditionally, the third quarter of each calendar year is characterized by light issuance activity as the market readies for U.S. hurricane season. This trend continued in 2010, when only two transactions — Shore Re Ltd. Series 2010-1 (Shore Re) and Green Valley Ltd. Series 2 (Green Valley) — closed in the third quarter, providing $2321 million of catastrophe bond capacity to sponsors:
• The $96 million Shore Re bond provides investors with exposure to Massachusetts hurricane risk on an indemnity basis. Following on the heels of heavy U.S. hurricane-exposed bond issuance earlier in the year, Shore Re was marketed with two separate tranches. Unfortunately, most investors had already approached or exceeded their U.S. hurricane portfolio limits at that time and, consequently, only Shore Re’s Class A tranche closed at a level below its targeted issuance of $100 million.
• Investors’ declining interest in U.S. hurricane-exposed bonds following the very active second quarter of 2010 signaled investors’ need to diversify their portfolios with non-peak peril catastrophe risks. In September, 2010, Groupama S.A. responded with Green Valley, a €100 million France windstorm catastrophe bond. Green Valley was the first non-U.S. exposed catastrophe bond issued in the 2010 calendar year, and only the second that did not include U.S. hurricane risk. Due to strong investor demand, the transaction was oversubscribed with attractive pricing for the reinsured.
The 2010 calendar year was capped by a rush of transactions, with the conclusion of 10 catastrophe bond transactions in the fourth quarter, totaling $2 billion in issuance volume. Following the lead of the third quarter, the fourth quarter gave rise to a much diversified offering of catastrophe bonds. This diversification provided investors with a welcome opportunity to invest in other perils and re-balance their existing portfolios by geography and peril. For example:
• The €275 million Calypso Capital Limited Series 2010-1 provides repeat sponsor AXA Global P&C (AXA) with Europe windstorm cover based on a PERILS trigger. The deal received strong investor support and was subsequently upsized from the marketed issuance amount of €150 million.
• American Family Mutual Insurance Company (American Family) followed in November with its first catastrophe bond transaction, sponsoring $100 million of notes through Mariah Re Ltd. Series 2010-1 (Mariah Re). As the first ever securitization for pure U.S. severe thunderstorm risk, investors readily embraced the transaction, allowing the Property Claim Services (PCS) indexed annual aggregate bond to price well below initial expectations.
Also in the fourth quarter, a handful of sponsors decided to access the capital markets with subsequent issuances from their established shelf programs:
• SCOR Global P&C SE’s (SCOR) €75 million Atlas VI Capital Limited Series 2010-1 (Atlas VI) transaction covers Europe windstorm and Japan earthquake risk using the Paradex trigger for both perils.
1 Green Valley Ltd. Series 2 issue size is €100 million. This was converted at € = $1.3555 as of September 30, 2010.
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• The success of the Mariah Re transaction in November prompted American Family to sponsor a second issuance just one month later. The bond provides an additional $100 million of U.S. severe thunderstorm coverage for the layer directly below the first issuance.
• The $300 million Residential Reinsurance 2010 Limited Series 2010-II (Res Re 2010-II) notes provide sponsor United States Automobile Association (USAA) with indemnity protection for the U.S. perils of hurricane, earthquake, severe thunderstorm, winter storm, and wildfire. This was USAA’s second transaction of the calendar year, after its four-tranche Residential Reinsurance 2010 Limited Series 2010-I (Res Re 2010-I) deal in May.
• National Union Fire Insurance Company of Pittsburgh (Chartis) also returned to the market for a second issuance and secured an additional $450 million U.S. multi-peril capacity. This followed the successful issuance of its first bond, the Lodestone Re Ltd. Series 2010-1 (Lodestone Re 2010-1) in May, which provides $425 million of U.S. multi-peril capacity.
• Flagstone Reassurance Suisse S.A. (Flagstone) sponsored Montana Re Ltd. Series 2010-1 (Montana Re), offering $210 million of coverage on a Paradex and parametric index basis for the perils of U.S. earthquake, U.S. and Cayman Islands hurricane, Europe windstorm, Japan earthquake, and Japan typhoon. The Montana Re transaction is the first deal to use Paradex for U.S. perils.
Transactions in the life and health market also contributed to the active fourth quarter of 2010:
• Swiss Reinsurance Company Ltd. (Swiss Re) issued another $175 million of excess mortality risk in October through Vita Capital IV Ltd. (Vita IV).
• Aetna Life Insurance Company (Aetna Life) also entered the fray by sponsoring Vitality Re Limited (Vitality Re), a $150 million transaction. The deal provides indemnity-based medical benefit claims protection for the sponsor, conditioned on the medical benefit ratio (MBR) of the covered business exceeding a pre-defined attachment point.
• Meanwhile, Swiss Re launched Kortis Capital Ltd. (Kortis), a $50 million life and health-linked risk bond which is based on the difference in the annualized mortality improvement of United Kingdom males between the ages of 75 and 85 and of U.S. males between 55 and 65 over an eight-year risk period.
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Catastrophe Bond Issuance By Half-Year
Source: Aon Benfield Securities
Issuance in the first quarter of 2011 was up significantly from the same period in 2010. More than $1 billion was issued in four bonds, compared to just $300 million in two bonds in 2010. For example:
• Federal Insurance Company (Chubb) came back to the market following its East Lane Re III Ltd. issuance in 2009. Chubb’s $475 million East Lane Re IV Ltd. (East Lane IV) transaction included two tranches and replaced some capacity from the maturing East Lane Re Ltd. and East Lane Re II Ltd. bonds. The covered perils include Northeast U.S. hurricane, earthquake, severe thunderstorm and winter storm, as well as inland flood arising from hurricanes in selected counties.
• Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Re) brought the fourth transaction of the first quarter, the $100 million Queen Street II Capital Limited (Queen Street II). Queen Street II replaced some capacity from the maturing €170 million Queen Street Capital covering Europe windstorm but also added U.S. hurricane cover. Most notably, the deal successfully closed despite market disturbance from the Great East Japan Earthquake several days prior.
Under normal circumstances, volume accelerates from the first to the second quarter, but in 2011, the number of transactions increased only slightly from the first to the second quarter while the issuance volume fell. In all, there were five issuances in the second quarter compared to 10 issuances for the same period in 2010. Four of these five issuances were from repeat sponsors, including one from the life and health sector. In total, the second quarter of 2011 experienced $741 million in issuance, versus $2.4 billion for the same period in 2010.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2011201020092008200720062005
$ M
illio
ns
883
2,302
4,976
2,510 2,6501,757
977
3,168
3,404
320
1,460
2,011
2,625
January - June 2011
July - December 2010
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Market Drivers
• Supply and Demand Despite the fact that June 2011 renewals in Australia and New Zealand priced
significantly higher than those in 2010, Aon Benfield clients seeking to transfer U.S. risk through the traditional reinsurance market in the second quarter of 2011 found the market to be priced the same or even marginally lower than the previous year.2 With stable or lower traditional reinsurance costs and ample capacity, sponsors saw no significant price advantage nor capacity requirement in using ILS for a part of their reinsurance needs.
That said, sponsors continued to recognize the positive effects of diversifying their sources of reinsurance capital by periodically issuing ILS to the market. The number of repeat issuers during the past 12-month period demonstrated sponsors’ desire to maintain relationships with investors and cultivate the ILS market as a source of reinsurance capacity.
From the buy-side perspective, investors found themselves with additional capital to invest following, in some cases, successful capital raising efforts in the prior 12 months. This led to some increased demand during the period, particularly for diversifying peril transactions, but in many cases, available capital was either held on the sidelines or invested in other markets.
• RMS At the time this report is being prepared, sponsors and investors alike are
still working to thoroughly understand the RMS updates in version 11.0 of the U.S. Hurricane Model. RMS implemented changes to both the Industry Exposure Database (IED) and to the model itself. Although the RMS model updates primarily drove the increase to the model loss curves, the total industry property exposure also increased by 12 percent across hurricane-exposed states. Commercial lines experienced a larger increase at 18 percent, compared to 8 percent for residential lines. It should be noted that the prior hurricane IED had a 2008 vintage.
Both the wind and storm surge hazard modules in version 11.0 of RMS’ U.S. Hurricane Model have been pushed farther inland. The wind vulnerability module has been updated to include claims data from Hurricane Ike, where previous data was sparse. The module was also updated with reevaluated data from the 2004 – 2005 seasons. The commercial lines’ average annual losses and select return periods are generally higher, both from the IED and Industry Loss Curves (ILC). Due to the increased inland hazard, the Texas and mid-Atlantic regions have the greatest increases for the ILC. The increased inland hazard is only partially offset by reduced coastal hazard. It will take sponsors some additional months to complete this process and implement rate changes.
2 Reinsurance Market Outlook, June and July 2011 Update, Aon Benfield Analytics
Insurance-Linked Securities 2011
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While we have seen some relatively small price decreases in RMS-modeled hurricane bonds in the secondary market, the ratings downgrades of those bonds do not appear to have had any material impact on prices as of the date of this report.
• Natural Events A 6.3-magnitude earthquake struck New Zealand’s South Island on February
22, 2011, causing widespread damage, fatalities and injuries. Extensive damage occurred throughout Christchurch. Given the intermingled damages from the Darfield earthquake of September 2010, which also impacted Christchurch, determining insured losses from the event proved to be extremely difficult and complex.
The Great East Japan Earthquake, which led to a full loss for the Muteki Ltd. Series 2008-1 Class A (Muteki) transaction and a partial loss to Vega Capital Ltd. Series 2010-1 Class D’s Reserve Account, caused two other bonds — Montana Re Class E and Topiary Capital Limited (Topiary) — to be on-risk for the next event.
• Maturities For the 12-month period ending June 30, 2011, approximately $5.7 billion of
natural catastrophe bonds matured. Since most of the matured transactions originated in 2007 and 2008, the period with the greatest historical ILS issuance thus far, it is not surprising that the amount of maturities exceeded the amount of new issuance, thus causing the market to decline in the overall value of bonds outstanding. We expect to see a reversal of the trend in 2012, as the 2009 issuance year is the lowest since 2005.
Catastrophe Bonds Maturing By Year (Years ending June 30)
Source: Aon Benfield Securities
0
1,000
2,000
3,000
4,000
5,000
6,000
20132012201120102009200820072006
3,900
100
2,483
329
5,674
3,939
4,531
155
804
371
1,412 1,442
400
2,670
$ M
illio
ns
PropertyMaturities
Life / HealthMaturities
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Outlook
Conditions remain positive for catastrophe bond issuance for the remainder of the 2011 calendar year. As noted, investors have strong demand for bonds, particularly those with non-U.S. hurricane exposure. Both repeat and new sponsors are expected to issue into the ILS market for diversification and to complement overall reinsurance purchases. Both sponsors and investors alike are working through the model change issues and will collectively work to form a commercially acceptable view of risk and return.
We expect that more non-U.S. risk will be ceded to the market in the near term. PERILS will have a positive impact on issuance for Europe perils and ILS will provide increasing support for the markets that have experienced loss from recent natural catastrophes.
Finally, investors will continue to regard ILS as a viable option that has consistently provided competitive returns versus similarly rated corporate securities. Despite losses from the Great East Japan Earthquake, ILS returns for the 12-month period ended June 30, 2011 were 5.97 percent according to the Aon Benfield All-Bond Index (please see Aon Benfield ILS Indices section). Also as noted, investors have successfully raised additional capital which must be put to work.
Insurance-Linked Securities 2011
12
2011 ILS Transaction Summary (Year ending June 30, 2011)
Issuance Date Program Series Class Perils
Issue Size ($MM) Trigger Collateral
Jul-10 Shore Re Ltd Series 2010-1 Class A US HU 96.0 Indemnity MMF
Sep-10 Green Valley Ltd. Series 2 Class A EU Wind 135.6* Parametric Index EBRD Notes
Oct-10 Calypso Capital Limited Series 2010-1 Class A EU Wind 383.5** PERILS TPR
Oct-10 Vita Capital IV Ltd Series III Class E Extreme Mortality 100.0 Index IBRD Notes
Oct-10 Vita Capital IV Ltd Series IV Class E Extreme Mortality 75.0 Index IBRD Notes
Nov-10 Mariah Re Ltd. Series 2010-1 US ST 100.0 PCS MMF
Dec-10 Residential Reinsurance 2010 Limited Series 2010-II Class 1 US HU, EQ, ST,
WS, WF 210.0 Indemnity MMF
Dec-10 Residential Reinsurance 2010 Limited Series 2010-II Class 2 US HU, EQ, ST,
WS, WF 50.0 Indemnity MMF
Dec-10 Residential Reinsurance 2010 Limited Series 2010-II Class 3 US HU, EQ, ST,
WS, WF 40.0 Indemnity MMF
Dec-10 Atlas VI Capital Limited Series 2010-1 Class A EU Wind, JP EQ 99.3*** Paradex TPR
Dec-10 Vega Capital Ltd. Series 2010-I Class C US HU, EQ, EU Wind, JP EQ, TY 63.9 PCS, PERILS, Parametric Index IBRD Notes
Dec-10 Vega Capital Ltd. Series 2010-I Class D US HU, EQ, EU Wind, JP EQ, TY 42.6 PCS, PERILS, Parametric Index IBRD Notes
Dec-10 Mariah Re Ltd. Series 2010-2 US ST 100.0 PCS MMF
Dec-10 Lodestone Re Ltd. Series 2010-2 Class A-1 US HU, EQ 125.0 PCS MMF
Dec-10 Lodestone Re Ltd. Series 2010-2 Class A-2 US HU, EQ 325.0 PCS MMF
Dec-10 Vitality Re Limited Series 2010-1 Class A Health MBR 150.0 Indemnity TPR
Dec-10 Montana Re Limited Series 2010-1 Class C US HU, EQ 70.0 Paradex, Parametric Index TPR
Dec-10 Montana Re Limited Series 2010-1 Class D US HU, EQ 80.0 Paradex, Parametric Index TPR
Dec-10 Montana Re Limited Series 2010-1 Class E US HU, EQ, EU Wind, JP EQ, TY 60.0 Paradex, Parametric Index TPR
Dec-10 Kortis Capital Ltd. Series 2010-1 Class E Longevity 50.0 Index IBRD Notes
Dec-10 Successor X Ltd Series 2011-1 Class III-R3 US HU, EQ , AUS EQ 65.0 Modeled Loss, Parametric Index IBRD Notes
Dec-10 Successor X Ltd Series 2011-1 Class III-S3 US HU, EQ , AUS EQ 50.0 Modeled Loss, Parametric Index IBRD Notes
Dec-10 Successor X Ltd Series 2011-1 Class III-T3 US HU, EQ , AUS EQ 55.0 Modeled Loss, Parametric Index IBRD Notes
Dec-10 Green Fields Capital Limited Series 2011-1 Class A EU Wind 100.4**** PERILS EBRD Notes
Feb-11 Successor X Ltd. Series 2011-2 Class IV-E3 US HU, EQ 160.0 PCS, Parametric Index IBRD Notes
Feb-11 Successor X Ltd. Series 2011-2 Class IV-AL3 US HU, EQ 145.0 PCS, Parametric Index MMF
Feb-11 Foundation Re III Ltd. Series 2011-1 Class A US HU 135.0 PCS MMF
Mar-11 East Lane Re IV Ltd. Series 2011-1 Class A US HU, EQ, ST, WS 225.0 Indemnity MMF
Mar-11 East Lane Re IV Ltd. Series 2011-1 Class B US HU, EQ, ST, WS 250.0 Indemnity MMF
Mar-11 Queen Street II Capital Limited US HU, EU Wind 100.0 PCS, PERILS MMF
Apr-11 Blue Fin Ltd. Series 4 Class B US HU, EQ 40.0 Modeled Loss MMF
Apr-11 Vitality Re II Limited Series 2011-1 Class A Health MBR 110.0 Indemnity TPR
Apr-11 Vitality Re II Limited Series 2011-1 Class B Health MBR 40.0 Indemnity TPR
May-11 Johnston Re Ltd. Series 2011-1 Class A US HU 70.0 Indemnity MMF
May-11 Johnston Re Ltd. Series 2011-1 Class B US HU 131.8 Indemnity MMF
May-11 Residential Reinsurance 2011 Limited Series 2011-1 Class 1 US HU, EQ, ST,
WS, WF 57.0 Indemnity MMF
May-11 Residential Reinsurance 2011 Limited Series 2011-1 Class 2 US HU, EQ, ST,
WS, WF 33.0 Indemnity MMF
May-11 Residential Reinsurance 2011 Limited Series 2011-1 Class 5 US HU, EQ, ST,
WS, WF 160.0 Indemnity MMF
Jun-11 Loma Reinsurance Ltd. Series 2011-1 Class A US HU, EQ, EU Wind, JP EQ 100.0 PCS, PERILS, Modeled Loss TPR
Total 4,383.1
Source: Aon Benfield Securities
HU — HurricaneEQ — EarthquakeWS — Winter StormST — Severe
Thunderstorm
WF — Wild FireEU — EuropeJP — JapanUS — United StatesTY — Typhoon
Legend* €100,000 issue size, €1 = $1.3555 (9/30/10)
** €275,000 issue size, €1 = $1.3947 (10/29/10)
*** €75,000 issue size, €1 = $1.3239 (12/9/10)
**** €75,000 issue size, €1 = $1.3384 (12/31/10)
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The Aon Benfield ILS IndicesThe Aon Benfield ILS Indices are calculated by Thomson Reuters using month-end price data provided by Aon Benfield Securities.3
Aon Benfield ILS Indices
Index Title Index ValueReturn for Annual Period
Ending June 30 Avg Annual
Return
Aon Benfield ILS Indices 6/30/11 6/30/10 6/30/09 2011 2010 2001-2011
All Bond 234.08 220.88 195.73 5.97% 12.85% 8.38%
BB-rated Bond 221.48 211.90 187.60 4.52% 12.95% 7.86%
U.S. Hurricane Bond 231.13 213.00 184.92 8.51% 15.18% 8.47%
U.S. Earthquake Bond 202.08 188.48 176.08 7.21% 7.04% 6.69%
Benchmarks
3-5 Year U.S. Treasury Notes 310.87 300.26 281.65 3.53% 6.61% 5.39%
3-Year U.S. Corporate BB+ 383.45 353.25 308.95 8.55% 14.34% 7.90%
S&P 500 1320.64 1030.71 919.32 28.13% 12.12% 0.76%
ABS 3-5 Year, Fixed Rate 337.20 317.00 265.18 6.37% 19.54% -0.77%
CMBS Fixed Rate 3-5 Year 256.63 235.72 185.82 8.87% 26.85% 1.35%
Source: Aon Benfield Securities, Bloomberg
On an annual basis, through June 30, 2011, all indices posted gains. The Aon Benfield All Bond and BB-rated Bond indices, both negatively impacted by the full loss of Japan earthquake bond Muteki, posted returns of 5.97 percent and 4.52 percent, respectively. The return on the U.S. Hurricane and U.S. Earthquake Bond indices were near their historical averages at 8.51 percent and 7.21 percent respectively. The current annual returns fell below comparable ones for the prior-year period, with the exception of the U.S. Earthquake Bond index which performed marginally better. The drop was primarily due to the effects of the Great East Japan Earthquake, which led to both principal and mark-to-market losses in 2011.
3 The 3-5 Year U.S. Treasury Note Index is calculated by Bloomberg and simulates the performance of U.S. Treasury notes with maturities ranging from three to five years.
The 3-Year U.S. Corporate BB+ Index is calculated by Bloomberg and simulates the performance of corporate bonds rated BB+ on a zero coupon basis. Zero coupon yields are derived by stripping the par coupon curve. The maturities of the BB+ rated bonds in this index are three years.
The S&P 500 is Standard & Poor's broad-based equity index representing the performance of a broad sample of 500 leading companies in leading industries. The S&P 500 Index represents price performance only, and does not include dividend reinvestments or advisory and trading costs.
The ABS 3-5 Year, Fixed Rate Index is calculated by Bank of America Merrill Lynch (BAML) and tracks the performance of U.S. dollar denominated investment grade fixed rate asset backed securities publicly issued in the U.S. domestic market with terms ranging from three to five years. Qualifying securities must have an investment grade rating, a fixed rate coupon, at least one year remaining term to final stated maturity, a fixed coupon schedule, and an original deal size for the collateral group of at least $250 million.
The CMBS Fixed Rate 3-5 Year Index is calculated by BAML and tracks the performance of U.S. dollar denominated investment grade fixed rate commercial mortgage backed securities publicly issued in the U.S. domestic market with terms ranging from three to five years. Qualifying securities must have an investment grade rating, at least one year remaining term to final maturity, a fixed coupon schedule, and an original deal size for the collateral group of at least $250 million. The performance of an index will vary based on the characteristics of, and risks inherent in, each of the various securities which comprise the index. As such, the relative performance of an index is likely to vary, often substantially, over time. Investors cannot invest directly in indices.
Past performance is no guarantee of future results.
Insurance-Linked Securities 2011
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Additionally, returns for the 12 months ending June 30, 2010 benefited from significant spread tightening as the market recovered from the financial crisis. We do not anticipate similar strong results for the current period ending June 30, 2012.
While annual returns for the ILS indices lagged many of the benchmark returns in 2011, the 10-year returns of the All Bond index remained superior, demonstrating the value of a diversified book of pure insurance risk.
In the absence of a severe catastrophic event, we anticipate that index averages will move closer to their historic average annual returns during 2012.
Aon Benfield All Bond Indices versus Financial Benchmarks
Source: Aon Benfield Securities, Bloomberg
Aon Benfield ILS Indices
Source: Aon Benfield Securities
All Bond
3 Year U.S.Corporate BB+
ABS 3-5 Yrs,Fixed Rate
CMBS FixedRate 3-5 Yrs
S&P 500
2010 2011200920082007200620052004200320022001
Tota
l Ret
urn
150%
120%
90%
60%
30%
0%
-30%
-60%
2010 2011200920082007200620052004200320022001
Tota
l Ret
urn
150%
120%
90%
60%
30%
0%
All Bond
U.S. Hurricane
U.S. EQ
BB-rated
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The Buy SideA review of ILS investor activity
In the third quarter of 2010, investors’ U.S. hurricane exposure as a percentage of outstanding ILS exposure reached previously unseen levels. As of September 30, 2010, approximately 53 percent of the risk in the catastrophe bond market came from U.S. hurricane (based on contribution to expected loss), compared to 27 percent in the period immediately after Hurricane Katrina in August 2005. As a result of the large supply, prices declined for U.S. hurricane-exposed bonds in the secondary market in July. Trading in July was relatively light, followed by a rebound in August, with heavy volumes in short-dated U.S. hurricane bonds as well as Europe windstorm bonds. Despite concerns with Hurricane Earl in late August, investors generally maintained their positions in the wind-pool bonds (Johnston Re Ltd. Series 2010, Parkton Re Ltd. Series 2009, and Shore Re). Ultimately, Hurricane Earl merely brushed the U.S. East Coast and eventually made landfall in Canada’s Nova Scotia. Little U.S. loss was incurred and there was no impact on the outstanding bonds. Prices of U.S. hurricane bonds took a short-lived mark-to-market loss during the storm but quickly rebounded once the storm passed. For the month of August as a whole, the price of U.S. hurricane bonds increased, reversing the losses of the previous month.
In September, the market began to experience greater demand for U.S. hurricane bonds. In addition, several investors traded on the expectation that prices would quickly increase if the season ended without a major loss. With greater investor interest throughout the month, prices increased and spreads declined for U.S. hurricane and U.S. multi-peril bonds.
Throughout the third quarter, investor demand remained strong for diversifying perils, as indicated by the success of the Green Valley issuance. On the secondary market, prices for diversifying perils exhibited consistent increases throughout the quarter as investors sought diversification away from U.S. peak zone perils.
In the fourth quarter of 2010, investors continued their search for diversifying perils but the demand for U.S. hurricane risk also picked up correspondingly, as evidenced by heavy secondary trading volumes across all perils and successful placements of new issues in the primary market. The benefits of shelf programs began to manifest as market conditions prompted several sponsors (including American Family, Chartis and USAA) to utilize their established programs to bring second issuances in the year. In the secondary market, prices for bonds rose at the beginning of the fourth quarter as investors looked to deploy capital. Later, those gains were lost as focus shifted to the primary market at year end, causing prices to finish relatively flat as compared to those in the prior quarter. The year finished with secondary and primary market pricing somewhat misaligned, with new issues priced more tightly than comparable secondary bonds.
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Secondary trading remained heavy but balanced throughout October and November with similar trading volumes in bonds exposed and not exposed to U.S. hurricane. In early November, investors expected a busy primary pipeline, and some looked to free up cash to participate. Mariah Re, the first to offer severe thunderstorm as a standalone peril, was the only bond to close in the month. Strong investor demand for Mariah Re drove the spread down and, in the next month, investors were offered a second issuance as the sponsor American Family used its shelf program to quickly issue a second layer attaching at a lower level.
In December, both the primary and secondary markets were strong. Investors were anxious to deploy their remaining cash before the year ended, which in turn served to drive up the size of primary issuances. This demand boosted the size of the Lodestone Re Ltd. Series 2010-2 (Lodestone 2010-2) transaction to $450 million, making it the largest transaction of the year. KAMP Re 2005 Ltd., Zurich American Insurance Company’s catastrophe bond which suffered losses from Hurricane Katrina, finally ended its extended redemption period by returning approximately $0.25 on the dollar to its investors. As is typical at year end, rebalancing activities raised trading volumes in the market.
Catastrophe Bond Issuance By Peril (Years ending June 30)
Source: Aon Benfield Securities
Secondary trading began 2011 with several eager investors looking to deploy their capital. Conversely, we observed investor interest in selling lower-coupon bonds as they sought to add more yield after a year in which most bonds had been issued in the 1 to 2 percent expected loss band. This demand for higher yields also translated into strong demand for Successor X Ltd. Series 2011-2 (Successor X 2011-2), which kicked off the quarter’s new issuances with significant oversubscription and price tightening. Trading volumes remained elevated as investors rebalanced their portfolios in anticipation of an active issuance environment. Foundation Re III Ltd. Series 2011-1 Class A (Foundation Re III) was successfully launched during the period, ultimately closing at an upsized level of $135 million.
East Lane IV gave trading a boost as investors cleared room for a comparatively
46%
15%
7%
19%
2010
U.S. Hurricane
Life / Health
Japan
U.S. Other
EU Windstorm
U.S. Earthquake
54%29%
8%1%6%
2011
1% 1% 1%
Rest of World
12%
17
Aon Benfield Securities
high-priced transaction relative to the secondary market. This spurred trading in both live and dead (those with little to no risk remaining until maturity) catastrophe bonds, thus pushing trading volumes by Aon Benfield Securities to levels not seen since 2008.
Most of the trading in Japan-exposed bonds occurred in the first quarter of 2011 when investors were able to liquidate their positions in a fairly organized market. At the end of the quarter, activities were centered on the Great East Japan Earthquake. Several ILS investors exited positions exposed to the earthquake before the extent of its damage could be better understood.
In the second quarter, while investors were still attempting to grasp the full impact of the Great East Japan Earthquake on the ILS market, they began shifting their focus to the upcoming U.S. hurricane season. However, the relatively small pipeline was a disappointment to investors, forcing many to go to the secondary market to acquire positions. Fortunately, the dislocation in the retrocessional and Industry Loss Warranty (ILW) markets convinced many collateralized players to liquidate catastrophe bond positions in the secondary market, giving pure ILS investors an opportunity to purchase bonds despite the lack of a heavy primary pipeline. Demand for diversifiers continued throughout the second quarter, although this did not lead to high trading volumes due to reluctance by investors to sell diversifiers without having a replacement security.
Following RMS’ major update to its U.S. Hurricane Model in February 2011, investors anxiously awaited the release of its remodeled statistics for the ILS portfolio management tool, Miu (version 2.6). Meanwhile, given the large increases in modeled losses due to the update, Standard and Poor’s (S&P) placed 16 RMS-modeled catastrophe bonds on CreditWatch negative in April. Although the potential downgrade did not have negative effects on pricing, investors remained cautious with those bonds. In May, RMS released its Miu update, which provided subscribers with new modeling statistics for all bonds in the market. Despite the fact that investors had anticipated these modeling statistics to be higher, the magnitude of change was a shock to most. RMS reported that on average the expected losses of existing bonds increased by 90 percent under the new model. As a consequence, buyers on the secondary market instantly lowered their bids by 1 to 2 percent on bonds that had originally been modeled by RMS to account for this new change. However, by the end of the quarter, the bonds had recovered over half of the mark-to-market losses.
Between April and June 2011, an extremely active stretch of severe weather swept through areas east of the Rocky Mountains in the U.S., resulting in a price reduction for the Mariah Re bonds, which are structured with an annual aggregate trigger to protect its sponsor, American Family, against a spate of tornado losses. Unlike most catastrophe bonds, which are designed to protect a sponsor from a severe catastrophe, the Mariah Re bonds are a frequency cover, protecting American Family from multiple events occurring in any given risk period. As such, in any normal year, one would expect to see multiple tornadoes eroding the retention.
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U.S. hurricane capacity began to rebound in earnest toward the end of the second quarter as several investors began to distribute ILS bids across the secondary market. Investor inflows were positive as a number of new indirect investors, who sought to acquire bonds across multiple regions and perils, came into the market through existing catastrophe funds. This demand began to push spreads down throughout the month of June. The weighted average spread for U.S. hurricane bonds began the second quarter at 652 basis points and peaked on May 31 at 755 basis points, only to decline to 703 basis points by the end of June. At the same time, the pricing for U.S. earthquake, Europe windstorm and Japan earthquake continued to decline to 350 basis points, 327 basis points, and 480 basis points, respectively.
Investor Participation in Aon Benfield Securities Transactions
Aon Benfield Securities’ analyses of investor category and geographic attributes include only those transactions in which the firm participated.
Investor By Category (Years ending June 30)
Source: Aon Benfield Securities
Institutional investor participation has continued to increase since the global financial crisis and, as a share of market, has surpassed dedicated catastrophe funds as the dominant participant for the year ending June 30, 2011. In addition, the majority of capital invested in catastrophe funds today comes from institutional investors. Recent public announcements of ILS investments have come from The Guardian of New Zealand Superannuation Fund, Pensionskassernes Administration A/S, Pennsylvania Public School Employees Retirement System and BBC Pension Scheme. Mutual funds also gained share for the year as existing risk managers increased their appetite for catastrophe risk. However, no new mutual funds entered the sector. Given our work in developing and educating prospective ILS investors, we have become aware of several mutual funds which are involved in the due diligence process for potential investment into the ILS sector. Reinsurer participation fell to a low of 7 percent due to the effects of global catastrophe losses, which led to a decrease in demand for ILS investment. Since market returns had not begun to hit their hurdle rate, hedge fund participation, which tends to be opportunistic, remained at a relatively small percentage.
2010
Institutional
Hedge Fund
Mutual Fund
Reinsurer
Catastrophe Fund
2011
34%
5%
10%
7%
44%
39%
6%
4%
20% 31%
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Aon Benfield Securities
Investor By Country (Years ending June 30)
Source: Aon Benfield Securities
The most notable change in investor demographics was the surge in investment from Switzerland, which rose from only 18 percent for the year ending June 30, 2010 to the current 33 percent. Also noteworthy was the decline in ILS investment from Bermuda, from 24 percent for the year ending June 30, 2010 to 7 percent. This decline went hand-in-hand with the drop in reinsurer participation mentioned previously. Other categories remained relatively flat year over year.
Outlook
The market continues to ponder how the new RMS models will be incorporated into both the traditional reinsurance market and ILS market. Currently, many market participants have pointed out a need for additional rate increases but we do not believe that spreads will increase materially without any additional catastrophic occurrences. In addition, spreads have been stable in the secondary market with increasing investor demand as more capital flows into the market.
Investor interest in ILS appears to be at an all-time high. Much of this is undoubtedly due to the performance of the asset class during the 2008 financial crisis. The overwhelming majority of new investor interest is from institutional investors, which tend to have longer investment horizons. This “sticky” money is well suited for the inherent cyclicality of the property catastrophe ILS markets. Continued interest and investment from these investors will help stabilize the market and make ILS a competitive and attractive form of capital for sponsors.
Sponsors have been increasingly interested in developing long-term relationships with investors through both 144A deals and more private “club” transactions, whereby one or a small number of investors participate. These private deals have added flexibility to ILS transactions that would not otherwise be possible through the 144A market. In addition, a sponsor can test the market without having to go through the process of marketing a full-fledged catastrophe bond. Sponsors who would not otherwise contemplate a catastrophe bond have renewed interest in these types of deals and over the long term, this may be a catalyst to issuance and growth of the market.
2010
U.S.
Other
Bermuda
UK
Switzerland
2011
43%
24%
5%
10%
18%
47%
7%
5%8%
33%
Insurance-Linked Securities 2011
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ILS-Related Markets
Sidecar Resurgence
Following the market changing events of 2004 and 2005, sidecars played an important role in providing fresh capital to the reinsurance market. Although the recent catastrophic events in Australia, Japan, and New Zealand (as well as the latest RMS U.S. Hurricane Model change) did not cause a dislocation of the same magnitude, they created dislocations and subsequent opportunities. Consistent with 2004 and 2005, sidecars have again stepped up to provide fresh capital and take advantage of these opportunities.
The lack of sidecar activity over the past few years and the subsequent resurgence was not happenstance; the sidecar market was operating just as intended. Sidecars are designed to allow investors and sponsors to take advantage of temporary dislocations in the market. Unlike new company formations, sidecars are flexible and temporary by design, facilitating ease of entry and exit for both sponsors and investors. At such time when stability returns to the market, sidecars can be dissolved while capital management becomes much easier for (re)insurance companies.
In the absence of any large market-hardening events over the past few years, there were few opportunities for temporary capital. However, recent catastrophes, coupled with RMS’s model change have created a dislocation in the retrocessional markets. Consequently, the first half of 2011 featured a new sidecar cycle. During this time, four new sidecars were formed, with total capital of $680 million.
Year-to-Date 2011 Sidecars
Deal Sponsor Inception Capital ($MM)
AlphaCat Re Validus May-11 180.0
DaVinci Re Renaissance Re Jun-11 100.0
Accordion Re Lancashire Re Jul-11 200.0
New Point Re IV Alterra Capital Jul-11 200.0
Total 680.0
Source: Aon Benfield Securities
In addition to providing a means for sponsors and investors to capitalize on market opportunities, these vehicles have provided meaningful capacity to the market. Aon Benfield estimates that in the 12 months ending June 30, 2011, more than 40 percent of retrocessional capacity was written in collateralized form, which included sidecar capital. This capital helps provide market stabilization during dislocations, without causing surplus capital to be redeployed once the market softens.
Over the near term, additional sidecar activity will be largely dependent on new catastrophe activity. While the market is still incorporating the recent model changes, it is unlikely that the model changes alone will spur additional sidecar formations. However, should another destabilizing catastrophe event occur, particularly a large U.S. event, we would expect to see another cycle of sidecar formation.
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Aon Benfield Securities
Industry Loss Warranty Market Review
Over the past 12 months ending June 30, 2011, ILW transaction volumes grew significantly due to a number of factors, including the RMS' U.S. Hurricane Model change, accumulated catastrophe losses and excess capital in the ILS market.
Traditionally, ILW transactions are used as macro hedges for sponsors either to fill gaps in their reinsurance programs or to provide additional risk management at the top of their programs. In particular, sponsors that suffer significant losses which eroded their reinsurance programs choose ILWs as backup protection in preparation for the U.S. hurricane season. In addition, sponsors have also used the ILW market as wider balance sheet protection for their shareholders.
Investors’ funds allocated to the ILS asset class have also grown considerably over this time period with many pension plans now allocating funds to ILS. Due to a lower volume of transactions in the catastrophe bond market during the second quarter of 2011, investors instead deployed a larger share of their capital in ILWs.
Growth in ILWs is largely attributable to development of structured ILWs, where basis risk can be significantly reduced through customization of loss triggers. The triggers can be weighted to more closely fit the sponsor's portfolio, enabling access to additional complementary capacity with potentially lower basis risk than standard ILWs. In turn, it has facilitated the reach of index products from an investor’s point of view, which has often provided an initial point of entry for new ILS capital.
From a pricing perspective, Aon Benfield has observed steady ILW price increases in the first half of 2011, but has noted price stabilization at the time of publication. The largest increases were in U.S. hurricane ILW principally due to the RMS model changes and peak-zone exposure management.
Within Europe, pricing has increased more modestly but Aon Benfield expects prices to stabilize over the remainder of the year.
Collateralized Reinsurance
The collateralized reinsurance market faced challenges throughout the year ending June 30, 2011, ultimately emerging with a validation of this sector from customers and investors.
The absence of loss activity up to September 2010 led some managers to cut back their allocations to the sector on grounds of declining rates. However, the sequence of loss activity that commenced in September 2010, culminating with the Great East Japan Earthquake in March 2011, reversed that trend and affected the sector in a number of ways:
• First, the resulting claims activity eroded capital levels, which resulted in additional capital being held back in favor of cedents per the collateral release clauses in reinsurance contracts, allowing for future loss development;
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• Second, the events provided investors with an opportunity to raise and deploy new capital at historically favorable rates into non-U.S. risks, improving geographical diversification and risk-adjusted returns; and
• Third, the broader declines in global reinsurer capital levels decelerated market perceptions of rate softening headed into the June 2011 renewal season. New investors were able to enter a more favorably-priced market and traditional (re)insurers also enjoyed the return of sidecars, as investors provided fresh capital in the second quarter of 2011.
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U.S. Perils
Transaction Review
In the 12 months ending June 30, 2011, 16 catastrophe bonds covering U.S. risks were issued, and U.S. hurricane risk continued to dominate the ILS market with all but two of these containing exposures to the leading peril.
2011 ILS U.S. Transaction Summary (Q3 & Q4 2010)
Program Series Class Peril Issue Size ($MM)
Trigger Collateral
Shore Re Ltd Series 2010-1 Class A US HU 96.0 Indemnity MMF
Mariah Re Ltd. Series 2010-1 US ST 100.0 PCS MMF
Residential Reinsurance 2010 Limited
Series 2010-II Class 1US HU, EQ, ST,
WS, WF210.0 Indemnity MMF
Residential Reinsurance 2010 Limited
Series 2010-II Class 2US HU, EQ, ST,
WS, WF50.0 Indemnity MMF
Residential Reinsurance 2010 Limited
Series 2010-II Class 3US HU, EQ, ST,
WS, WF40.0 Indemnity MMF
Vega Capital Ltd. Series 2010-I Class CUS HU, EQ, EU Wind, JP
EQ, TY63.9
PCS, PERILS, Parametric Index
IBRD Notes
Vega Capital Ltd. Series 2010-I Class DUS HU, EQ, EU Wind, JP
EQ, TY42.6
PCS, PERILS, Parametric Index
IBRD Notes
Mariah Re Ltd. Series 2010-2 US ST 100.0 PCS MMF
Lodestone Re Ltd. Series 2010-2 Class A-1 US HU, EQ 125.0 PCS MMF
Lodestone Re Ltd. Series Series 2010-2 Class A-2 US HU, EQ 325.0 PCS MMF
Montana Re Limited Series 2010-1 Class C US HU, EQ 70.0Paradex,
Parametric IndexTPR
Montana Re Limited Series 2010-1 Class D US HU, EQ 80.0Paradex,
Parametric IndexTPR
Montana Re Limited Series 2010-1 Class EUS HU, EQ, EU Wind, JP
EQ, TY60.0
Paradex, Parametric Index
TPR
Successor X Ltd Series 2011-1 Class III-R3
US HU, EQ , AUS EQ
65.0Modeled Loss,
Parametric IndexIBRD Notes
Successor X Ltd Series 2011-1 Class III-S3
US HU, EQ , AUS EQ
50.0Modeled Loss,
Parametric IndexIBRD Notes
Successor X Ltd Series 2011-1 Class III-T3
US HU, EQ , AUS EQ
55.0Modeled Loss,
Parametric IndexIBRD Notes
Total 1,532.5
Source: Aon Benfield Securities
HU — HurricaneEQ — EarthquakeWS — Winter StormST — Severe
Thunderstorm
WF — Wild FireEU — EuropeJP — JapanUS — United StatesTY — Typhoon
Legend
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Third quarter issuance was consistently light with just one bond covering U.S. exposures. Shore Re, covering hurricane risk for the benefit of the Massachusetts Property Insurance Underwriting Association, came to market following a strong second quarter concentrated with U.S. hurricane issuance. This saturation of risk ultimately led to capacity constraints for the peril for some investors. As a result, the Shore Re transaction, which was initially marketed with two classes, closed only a single tranche. That tranche was sized slightly less than the targeted $100 million.
A new sponsor, American Family entered the catastrophe bond market in the fourth quarter of 2010 with an innovative transaction. Mariah Re was the first catastrophe bond to solely cover the peril of U.S. severe thunderstorm. The $100 million transaction provides coverage for American Family on an annual aggregate basis using a PCS index trigger. An additional feature of this transaction is the use of metro and non-metro factors providing enhanced customization to American Family’s portfolio. Investors were keen to participate in the diversifying transaction, which resulted in favorable pricing for the issuer in the $100 million transaction. Following strong investor demand and continuing favorable market conditions, American Family returned to the market with a second issuance from the Mariah Re Ltd. program one month later. The unrated $100 million Mariah Re Ltd. Series 2010-2 transaction provides American Family with coverage for the risk layer below their first issuance. S&P downgraded the Series 2010-1 transaction in June, following the record number of severe weather outbreaks in the first half of 2011.
An additional two sponsors utilized their program structures advantageously for second issuances in late 2010 to achieve further capacity. Both programs benefited from accelerated timelines with which the bonds came to market, taking advantage of investors' excess capital prior to year end.
USAA, a long-standing frequent sponsor, returned to the market in November following their $405 million issuance in May 2010. The Res Re 2010-II, covering U.S. hurricane, earthquake, severe thunderstorm, winter storm and wild fire, provides an additional $300 million capacity for USAA across three classes of notes.
Chartis was the third sponsor to return with an additional issuance in late 2010. Chartis first entered the catastrophe bond market in May 2010 with Lodestone Re 2010-1 covering U.S. hurricane and earthquake with a PCS index trigger. Lodestone Re 2010-1 achieved $425 million in capacity for the first issuance, which was the largest transaction in the first half of 2010. Following this success, Chartis closed the Lodestone Re 2010-2 transaction in December 2010 with an additional $450 million of protection for U.S. hurricane and earthquake.
The significant issuances for both USAA and Chartis in one calendar year demonstrate the catastrophe bond market’s ability to provide meaningful coverage, both for seasoned and new sponsors.
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Aon Benfield Securities
Flagstone reentered the market in December, following an issuance in the prior year. Montana Re provides $210 million of coverage for U.S. earthquake, U.S. and Cayman Islands hurricane, Europe windstorm, Japan earthquake and typhoon. The Montana Re transaction is the first deal to use a Paradex trigger for U.S. perils. Due to strong investor demand the transaction was upsized and priced below initial guidance. Montana Re was downgraded in April following the Great East Japan Earthquake.
Frequent sponsor Swiss Re returned to the market twice in December 2010 with the Vega Capital Ltd. Series 2010-I (Vega Capital) and Successor X Ltd. Series 2011 transactions. Successor X Ltd. Series 2011-2 was offered in February. These three transactions, which use a variety of triggers, provide Swiss Re with more than $580 million of coverage for perils in the U.S., Europe, Japan and Australia.
Issuance in the first quarter of 2011 was up significantly from the same period in 2010. More than $1 billion was issued in four bonds, compared to just $300 million in two bonds for the same period in 2010. Sponsors seeking U.S. hurricane coverage were anxious to avoid the clustered issuance witnessed in the second quarter of 2010.
2011 ILS U.S. Transaction Summary (Q1 & Q2 2011)
Program Series Class Peril Issue Size ($MM)
Trigger Collateral
Successor X Ltd. Series 2011-2Class IV-E3
US HU, EQ 160.0PCS, Parametric
IndexIBRD Notes
Successor X Ltd. Series 2011-2Class
IV-AL3US HU, EQ 145.0
PCS, Parametric Index
MMF
Foundation Re III Ltd. Series 2011-1 Class A US HU 135.0 PCS MMF
East Lane Re IV Ltd. Series 2011-1 Class AUS HU, EQ,
ST, WS225.0 Indemnity MMF
East Lane Re IV Ltd. Series 2011-1 Class BUS HU, EQ,
ST, WS250.0 Indemnity MMF
Queen Street II Capital Limited
US HU, EU Wind
100.0 PCS, PERILS MMF
Blue Fin Ltd. Series 4 Class B US HU, EQ 40.0 Modeled Loss MMF
Johnston Re Ltd. Series 2011-1 Class A US HU 70.0 Indemnity MMF
Johnston Re Ltd. Series 2011-1 Class B US HU 131.8 Indemnity MMF
Residential Reinsurance 2011 Limited
Series 2011-1 Class 1US HU, EQ, ST,
WS, WF57.0 Indemnity MMF
Residential Reinsurance 2011 Limited
Series 2011-1 Class 2US HU, EQ, ST,
WS, WF33.0 Indemnity MMF
Residential Reinsurance 2011 Limited
Series 2011-1 Class 5US HU, EQ, ST,
WS, WF160.0 Indemnity MMF
Loma Reinsurance Ltd. Series 2011-1 Class AUS HU, EQ, EU Wind, JP
EQ100.0
PCS, PERILS, Modeled Loss
TPR
Total 1,606.8
Source: Aon Benfield Securities
HU — HurricaneEQ — EarthquakeWS — Winter StormST — Severe
Thunderstorm
WF — Wild FireEU — EuropeJP — JapanUS — United StatesTY — Typhoon
Legend
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Following Swiss Re’s Successor X, Hartford Fire Insurance Company (Hartford Fire) was the second sponsor to come to market in 2011. The Foundation Re III transaction, covering U.S. hurricane, came to market just prior to the release of the new RMS' U.S. Hurricane Model. Hartford Fire, which utilized RMS in its previous transactions, selected AIR as the modeling firm. This eliminated a potential distraction around the RMS model change.
A number of potential sponsors that had utilized RMS considered issuances in the first half of 2011. The uncertainty around the new RMS model resulted in sponsors waiting to assess the impact, with none eager to be the first sponsor to utlize this new model. In fact, for the remainder of the first half of 2011, AIR was the sole modeling firm on transactions.
U.S. Hurricane Model Market Share
Source: Aon Benfield Securities
Also in the first quarter, repeat sponsor Chubb came back to the market following its East Lane Re III Ltd. issuance in 2009. East Lane IV achieved significant capacity, with $475 million indemnity protection against Northeast hurricane and U.S. earthquake, severe thunderstorm and winter storm. Additionally, coverage is provided for inland flood arising from hurricanes in selected counties. The transaction replaced some capacity from the maturing East Lane Re Ltd. and East Lane Re II Ltd. bonds.
Frequent sponsor Munich Re brought Queen Street II to market in March. The $100 million transaction provides coverage for U.S. hurricane and Europe windstorm. Despite the Great Japan Earthquake occurring during the marketing period, the deal successfully closed at its targeted size of $100 million and within price guidance just days later. This again demonstrated the robustness of the ILS market during such disturbances.
Allianz Argos 14 GmbH (Allianz) returned to the market for its sixth issuance since 2007 and the fourth issuance from its Blue Fin Ltd. program. The Blue Fin Ltd. Series 4 transaction utilizes a modeled loss trigger and provides coverage against U.S. hurricane and earthquake on a term aggregate basis. Combined with their Series 3 Class B transaction in 2010, Allianz’s total term aggregate protection for the layer is $100 million.
July - December 2010
RMS
EQE
AIR
January - June 2011
19%
81%
49.5%
20.8%
29.7%
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Aon Benfield Securities
USAA and the North Carolina Insurance Underwriting Association / Joint Underwriting Association returned in the second quarter with their 16th and third issuances, respectively. The second quarter finished with a new sponsor, Argo Re, Ltd. (Argo Re) coming to market with Loma Reinsurance Ltd. (Loma Re) in June. The transaction provides coverage for U.S. hurricane and earthquake, Europe windstorm and Japan earthquake on a second event basis over an 18-month period based on industry loss estimates. PCS and PERILS are used for the U.S. and Europe perils, respectively, with Japan recoveries based on modeled industry losses. After some increases to the initial price guidance, Loma Re provided Argo Re with $100 million capacity.
In the second quarter, S&P made a number of downgrades based on model changes, despite the fact that many of the bonds did not reset under the latest model. In May 2011, S&P downgraded the Class 1 notes of Residential Reinsurance 2009 Limited one notch due to AIR’s updated hurricane model. According to S&P, their “criteria say that if a modeling company issues an updated model and we believe there are significant changes in our perception of the risk for such peril, we may change the rating on any outstanding bonds, even if there is no model-based reset in the terms of any of the bonds concerned. Although the changes between versions 10.5 and 12.5 were not as significant as other model updates have been, the changes were significant enough to cause a one-notch downgrade to these notes.”
In July, S&P subsequently downgraded 11 tranches of U.S. hurricane cat bonds that utilized the RMS model, after first putting 16 catastrophe bonds on CreditWatch negative in April.
S&P Rating Changes
S&P Rating
Cat Bond Reason Initial Current
Mariah Re 2010-1 Storm Activity B CCC+
Res Re 2009 1 AIR Model Change BB- B+
Calabash Re III A RMS Model Change BB- B+
Foundation Re III 2010 RMS Model Change BB+ BB
Ibis Re 2009 B RMS Model Change BB- B+
Ibis Re 2010 A RMS Model Change BB BB-
Ibis Re 2010 B RMS Model Change B+ B
Lodestone Re 2010-1 A RMS Model Change BB+ BB
Lodestone Re 2010-1 B RMS Model Change BB BB-
Lodestone Re 2010-1 A-1 RMS Model Change BB+ BB
Montana Re 2009 A RMS Model Change BB- B
Montana Re 2009 B RMS Model Change B- CCC+
Montana Re 2010 C RMS Model Change B CCC+
Source: Aon Benfield Securities
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Severe Weather in the United States4
An extremely active stretch of severe weather occurred across areas east of the Rocky Mountains during April 2011. This tornado outbreak, the largest in recorded history with 334 separate tornado touchdowns, led to catastrophic damage throughout the Southeastern U.S. and the Tennessee Valley. The city of Tuscaloosa, Alabama took a direct hit from a high-end tornado that caused widespread devastation. At least three EF-5 tornadoes touched down during this outbreak. Reports from state government insurance agencies noted that combined insured losses were in excess of $1.3 billion.
In late May, another outbreak spawned an EF-5 tornado that destroyed a large section of Joplin, Missouri. This massive tornado had at least a 0.75-mile width over a 22.1-mile path. National Weather Service (NWS) meteorologists confirmed that the tornado contained winds at one point up to 250 mph, marking the fourth EF-5 tornado of the year in the U.S. According to local law enforcement officials, up to 25 percent of Joplin was completely destroyed after the tornado struck. The tornado led to 154 fatalities in the city, becoming the deadliest singular tornado since the NWS officially began keeping records in 1950. City managers noted that as much as 75 percent of the city had suffered various degrees of damage. A second EF-5 tornado in May was confirmed in central Oklahoma. Total economic and insured losses from severe weather in the U.S. during the month of May were anticipated to reach billions of dollars. The Joplin tornado will likely be one of the costliest single tornadoes ever recorded.
Floods were prevalent in the Missouri River and Souris River Basins in the U.S. and Canada during June. In Minot, North Dakota, the Souris River set an all-time record crest and flooded more than 4,100 homes in the city. The floods caused at least $200 million in damages and reconstruction costs throughout the river basin.
The U.S. endured at least four additional periods of severe weather in July, particularly across parts of the Midwest, Plains and the Rockies. Total combined economic losses from these storms were preliminarily listed at $1.3 billion while insured losses were a combined $900 million.
Impact of S&P’s Downgrade of the U.S. Sovereign Debt Rating
On August 5, 2011, S&P lowered the long-term sovereign credit rating of the U.S. from “AAA” to “AA+”. At the same time, S&P affirmed the short-term "A-1+" rating, the highest short-term rating, and removed it from CreditWatch negative. While the ILS market is generally isolated from the standard credit markets, 62 percent of catastrophe bonds issued in the 12 months ending June 30, 2011 are invested in U.S. Treasury Money Market Funds. As a result, the overall credit health of the U.S. remains important to the ILS market. Fortunately, Aon Benfield Securities does not expect this downgrade to significantly impact these funds from a regulatory or rating standpoint.
4 Data obtained from Monthly Cat Recap, Impact Forecasting LLC
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Aon Benfield Securities
Catastrophe Bond Issuance By Collateral Structure (12 months ending June 30)
Source: Aon Benfield Securities
Regarding regulatory concerns, the U.S. Security and Exchange Commission’s (SEC) Rule 2a-7 states that funds may hold a security as long as it is rated by multiple Nationally Recognized Statistical Rating Organizations (NRSRO), and two or more of those NRSROs rate the security in either their highest (First Tier) or second-highest (Second Tier) short-term rating levels. Since S&P affirmed the short-term rating, this downgrade had no impact on whether catastrophe bond collateral funds could invest in U.S. Treasuries. Furthermore, it is evident that multiple NRSROs would need to downgrade their short-term ratings of the U.S. before Money Market Funds lose their ability to invest in U.S. Treasuries.
Money Market Fund Rating Categories
Money Market Fund Category Moody’s Standard & Poor’s Fitch
Long-term Short-term Long-term Short-term Long-term Short-term
Eligible Securities
First Tier
Aaa
P-1
AAA
A-1+
AAA
F-1+
Aa1 AA+ AA+
Aa2 AA AA
Aa3 AA- AA-
A1 A+*
A2*
A3* A+
A-1
A+*
F-1A* A
A-*
Second Tier
A2*
P-2
A*
A-2
A-*
F-2A3* A- BBB+
Baa1 BBB+ BBB*
Baa2* BBB*
Ineligible Securities
Third Tier and
Below
Baa2*
P-3
BBB*
A-3
BBB*
F-3Baa3 BBB- BBB-
BB+*
Source: Investment Company Institute
* Due to the inherent complexities in comparing long-term risks with short-term risks, all three agencies allow some overlap in rating categories.
11%
89%
17%
21%62%
Money Market Funds
Medium Term Notes
Tri-Party Repurchases
20112010
Insurance-Linked Securities 2011
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There is also concern over whether the downgrade of U.S. sovereign debt will cause the NRSROs to lower their Money Market Fund ratings. When assigning fund ratings, the NRSROs consider both the ratings of the underlying securities in the fund as well as the Net Asset Value (NAV) stability of the fund. Like the SEC, the NRSROs consider the short-term ratings of the underlying securities. Since the short-term U.S. rating is unchanged, it is unlikely that this will have an impact on the overall fund ratings.
Regarding NAV stability, S&P issued a press release on August 8 which stated “we will track movements (if any) in a rated fund's NAV to see if it remains within the criteria metrics for their specific rating category (i.e., +/- 0.25 percent for 'AAA', which translates to $0.9975-$1.0025).” The potential exists for NAV fluctuations to affect Money Market Fund ratings. However, given the recent performance of U.S. Treasuries and the stability of these funds, this seems unlikely.
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Diversifying Perils
ILS in Europe
European insurance companies continue to be active sponsors of catastrophe bonds, despite a lack of broad Europe peril coverage. In the 12-month period ending June 30, 2011, European insurers sponsored 44 percent of the bonds based on issuance amount, which included transactions covering risk from the U.S., Europe and Asia.
2011 ILS Non-U.S. Transaction Summary (Year ending June 30)
Program Series Class Peril Issue Size (€MM)
Trigger Collateral
Green Valley Ltd. Series 2 Class A EU Wind 100.0 Parametric Index EBRD Notes
Calypso Capital Limited Series 2010-1 Class A EU Wind 275.0 PERILS TPR
Atlas VI Capital Limited Series 2010-1 Class AEU Wind, JP
EQ75.0 Paradex TPR
Green Fields Capital Limited
Series 2011-1 Class A EU Wind 75.0 PERILS EBRD Notes
Total 525.0
Source: Aon Benfield Securities
Of the transactions covering Europe windstorm, the market share for PERILS-structured triggers and recovery mechanics continued its upward trend. Of the eight transactions issued covering Europe windstorm, six utilized PERILS, including two of the three transactions that solely covered Europe windstorm.
Transaction Review
In September 2010, Groupama S.A. provided investors with much needed geographic diversification by sponsoring Green Valley, a €100 million France windstorm catastrophe bond that utilizes a parametric index trigger. Proceeds from the issuance were invested in European Bank for Reconstruction and Development (EBRD) global medium-terms notes rated AAA / Aaa / AAA, also providing investors with diversification of underlying collateral. Green Valley offers investors the opportunity to expose capital to a short-dated regional Europe windstorm transaction and, due to strong investor demand; the transaction was oversubscribed, resulting in competitive pricing for the issuer.
HU — HurricaneEQ — EarthquakeWS — Winter StormST — Severe
Thunderstorm
WF — Wild FireEU — EuropeJP — JapanUS — United StatesTY — Typhoon
Legend
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The €275 million Calypso kicked off the fourth quarter of 2010 by providing repeat sponsor AXA with Europe windstorm cover based on a modified PERILS trigger weighted by line of business (LOB) and CRESTA zone. LOBs include residential, commercial, industrial and agricultural, where defined. The modified trigger provides more customized coverage, reducing basis risk for the sponsor. Although the transaction closed in October 2010, the risk period did not begin until January 1, 2011. The deal received strong investor support and was subsequently upsized from the marketed issuance amount of €150 million.
SCOR’s €75 million Atlas VI transaction offers Europe windstorm and Japan earthquake risk using a Paradex trigger for both perils. It is the first transaction that utilizes a Paradex trigger for Japan earthquake risk. Atlas VI Series 2009-1, issued a year earlier, utilizes a Paradex trigger for Europe windstorm and a parametric index for Japan earthquake. The transaction closed at the low end of the price guidance due to strong investor demand in the transaction.
Vega Capital Ltd. Series 2010-I Class C and Class D bonds, sponsored by Swiss Re in December, included $106.5 million of Europe windstorm protection based on the PERILS Industry Loss Index trigger. Other perils covered included U.S. hurricane, California earthquake and Japan typhoon and earthquake. As a result of the Japan exposures, the Class C bonds were placed on review for a possible downgrade by Moody’s in March 2011.
Following its Green Valley bond in September, Groupama S.A. sponsored yet another France windstorm transaction, Green Fields Capital Limited Series 2011-1 (Green Fields), to close out the fourth quarter. The €75 million Green Fields bond secures four years of windstorm protection based on a modified PERILS trigger weighted by LOB and CRESTA, although Green Fields is the first PERILS bond to be country specific in coverage. The transaction closed at the low end of the price guidance.
In March 2011, Munich Re brought Queen Street II to the market. The $100 million transaction includes coverage Europe windstorm protection based on a modified PERILS trigger weighted by country. Queen Street II is the first PERILS structured transaction modeled by AIR. Due to the inclusion of U.S. hurricane risk, the transaction priced wider than comparable European windstorm only transactions.
Europe Windstorm Model Variances
RMS Europe Windstorm Model version 11.0 was released in July 2011. The new version now offers coverage across 15 countries in Europe with the additions of Poland, Slovakia and the Czech Republic. It is the first time the model has been updated since 2006. The claims data and observations from recent Europe windstorms such as Kyril (2007), Emma (2008), Klaus (2009) and Xynthia (2010) have been incorporated. Overall, the expected loss of ILS was relatively stable as a decline in hazard offset a rise in vulnerability. The inclusion of significantly higher frequency events in the wind field model caused the change. Certain parametric deals, especially aggregate deals which had experienced an increase in expected loss, were exceptions. RMS also explained that clustering causes larger increases on aggregate instruments and also changes the regional distribution of risk.
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RMS Europe Bond Benchmark Study
Benchmark BondV10.0 Europe Windstorm
Expected Loss – %V11.0 Europe Windstorm
Expected Loss – %
Fixed Exposure Bond – Occurrence 1.71 1.36
Fixed Exposure Bond – Aggregate 2.00 1.89
Interpolated Parametric Bond – Occurrence 2.97 1.16
Interpolated Parametric Bond – Aggregate 3.44 2.30
Station Parametric Bond – Occurrence 2.04 1.41
Station Parametric Bond – Aggregate 2.47 3.13
Source: RMS
ILS in the Asia / Pacific Region
The year ending June 30, 2011 experienced a series of significant events occurring in the Asia/Pacific region:
• A 7.1-magnitude earthquake in Darfield, New Zealand (September 4, 2010),
• Flooding in Australia (December 2010 to early 2011),
• Tropical Cyclone Yasi (end of January 2011 to early February 2011),
• A 6.3-magnitude earthquake in New Zealand’s South Island (February 22, 2011),
• A 9.0-magnitude earthquake and subsequent tsunami on the northeastern coast of Japan (March 11, 2011); and
• Two powerful earthquakes (magnitudes 5.2 and 6.0) in Christchurch, New Zealand, as aftershocks of the February 2011 earthquake (June 13, 2011).
The Darfield New Zealand earthquake had no impact on catastrophe bonds and only limited impact on collateralized reinsurance or ILWs. Since many of the covers had limits on contribution to the aggregate or excluded New Zealand, January renewals went smoothly within the collateralized reinsurance market. Similarly, the Australian flooding, Tropical Cyclone Yasi and the New Zealand aftershocks only marginally affected the sector.
Nonetheless, the Great East Japan Earthquake, along with all the above events in the region, had substantial impact on the reinsurance space for the first quarter of 2011. According to the Aon Benfield Aggregate dated March 31, 2011, global reinsurer capital fell by 6.4 percent due primarily to losses from these events.
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The Great East Japan Earthquake and the Asia ILS Market5
On March 11, 2011, a mega-earthquake and tsunami struck the northeastern coast of Japan, killing more than 15,500 people, injuring over 5,300 and causing damage to at least 330,000 homes and other structures. The Great East Japan Earthquake, as it is known, had a magnitude of 9.0 and the epicenter was 80 miles east of Sendai city and 231 miles northeast of Tokyo. The quake was at a depth of nearly 20 miles and ground shaking from the temblor was generally estimated to last between two to five minutes. Following the main tremor, more than 830 aftershocks rattled the region with at least 57 aftershocks registering above magnitude 6.0.6 The Japanese government estimated total economic losses to range between ¥16 to 25 trillion ($192 to $301 billion7), while the World Bank calculated that insured losses fell between ¥1 to 3 trillion ($12 to $36 billion8).9
Following the initial jolt, a tsunami with waves estimated by various news sources to exceed 32 feet swept away thousands of homes, boats, cars and buildings, leaving a huge amount of debris. The waves rushed several miles inland and flattened nearly everything in their path. One of the hardest hit coastal locations was in Sendai, where a large part of the city was submerged in a nearly 32-foot wave of water. Widespread damage to commercial facilities (including manufacturing sites for companies such as Toyota, Nissan, Honda and Sony) forced a stop in production. The earthquake also triggered multiple fires throughout the island of Honshu. Many sections of the Tohoku Expressway serving northern Japan sustained severe damages and all roads out of Tokyo toward quake-affected areas were closed to all but emergency vehicles. Tokyo’s main Narita International Airport and its secondary Haneda Airport were both shut down — leaving a combined 25,000 passengers stranded. Underground subway trains and bullet train service were also halted throughout the country, but have since been restored.
After the earthquake and tsunami, the Fukushima Daiichi Nuclear Power Plant lost electricity and back-up generators also failed. This caused the essential cooling systems to shut down, rendering them unable to regulate temperatures and keep the reactor fuel cool.
According to the Japan Meteorological Agency (JMA), the earthquake may have ruptured the fault zone from Iwate to Ibaraki with a length of 250 miles and a width of 120 miles. JMA pointed out that this event might have had the same mechanism as another large tsunami-spawning tremor that struck Japan in 1869. It should be noted that Japan has a rigorous earthquake building code in direct response to its location on the Pacific Ocean ‘Ring of Fire’ — a seismically active region. Nearly 90 percent of the world’s earthquakes have occurred on this arc.
The Great East Japan Earthquake was the fourth most powerful since 1900 and one of the strongest ever recorded in recent global history. The temblor was the largest since 2004, when a 9.1-magnitude earthquake triggered a tsunami off northern Sumatra in Indonesia, leaving approximately 220,000 people dead or missing in 12 countries around the Indian Ocean. The largest recorded earthquake in world history was the 9.5-magnitude earthquake that hit Chile on May 22, 1960.
5 Unless otherwise noted, all data is from United States Geological Survey (USGS), Magnitude 9.0, 2011 March 11 Earthquake Summary or USGS, Largest Earthquakes in the World since 1900
6 Data obtained from March 2011 Monthly Cat Recap, Impact Forecasting LLC7 $1 = ¥83.19 as of March 31, 20118 Ibid9 Data obtained from March 2011 Monthly Cat Recap, Impact Forecasting LLC
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Impact of the Great East Japan Earthquake on the Japanese Insurance Industry
The General Insurance Association of Japan has released an update to the loss development associated with the Great East Japan Earthquake. The update report states that, as of June 15, 2011, the total amount of the claims paid for "Earthquake Insurance on Dwelling Risks" had reached approximately ¥974 billion ($12 billion10) about 13 times larger (in today’s dollars) than the claims paid for the Great Hanshin Earthquake in January 1995.
The insurers' exposures for the dwelling earthquake risks are covered by the government-backed earthquake pool and Japan Earthquake Reinsurance Co., Ltd. The net retention, provisioned by the private sector insurers under the pool, stands at ¥503.8 billion ($6.2 billion) for losses ranging from ¥115 billion ($1.4 billion) to ¥1.12 trillion ($13.8 billion).11 In other words, the risk reserve retained by the private sector insurers is sufficient to fully cover the current losses.
In contrast, insurers’ commercial risks with exposure to earthquake are principally covered by traditional reinsurance programs, most of which are renewed annually on April 1. Earthquake programs saw prices increase by 25 to 50 percent from the previous year while the programs for typhoon risks kept a moderate increase of five to 10 percent. Once the loss situation became clear, some insurers, especially cooperatives, opted to extend their existing programs for three months to allow pricing negotiations to take place. They consummated the renewals at the end of June, with price increases of 30 to 50 percent.
Impact of the Great East Japan Earthquake on the Catastrophe Bond Market
In the aftermath of the Great East Japan Earthquake, the $300 million Muteki catastrophe bond was fully exhausted, and the sponsor, Munich Re, received the full payout from the bond for losses suffered in the earthquake. Thus, the bond became the first ever catastrophe bond that sustained a total loss due to a natural catastrophe event.
Subsequently, due to the effectiveness of the Muteki bond, potential Japanese insurers are looking to secure capacity from the ILS space as an alternative to traditional reinsurance markets. Demand for Japan earthquake coverage through the capital markets is expected to grow with increasing traditional reinsurance costs. We have also noticed increased demand from the corporate sector that cannot secure sufficient covers from primary insurers.
10 $1 = ¥80.98 as of June 15, 201111 Ibid
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Muteki was downgraded by Moody’s soon after the Great East Japan Earthquake in March, 2011 and then about two months later, on May 9, Munich Re, the sponsor on behalf of Zenkyoren, confirmed that the Muteki bond would be a total loss to investors. Initially, there was some delay in the calculation of the parametric index resulting from damage to the Kyoshin Network (K-NET) recording stations and lack of seismic data. By design, stations where no data was available would be assigned a zero value in calculating the index value. This could have been a significant issue if there were a large number of the K-NET stations with no available data. However, there was sufficient data to calculate the relevant index and decisively conclude that the Muteki bonds had reached the exhaustion level, which in turn caused investors to lose the entire principal on the bond.
S&P Rating Changes — Japan
S&P Rating
Cat Bond Reason Initial Current
Atlas VI Capital 2009 Japan Quake BB- B
Montana Re 2010 E Japan Quake B- CCC
Topiary Capital Japan Quake BB+ CCC+
Vita Capital IV E-3 Japan Quake BB+ BB
Source: Aon Benfield Securities
Aside from the Muteki bond, the Great East Japan Earthquake also affected some catastrophe bonds with exposures to Japan earthquake, including Montana Re and Topiary, both of which were downgraded by S&P as they have apparently been activated for the second or further event triggers. Pricing on these bonds dropped by 30 percent on average from their pre-downgrade levels, and investors realized mark-to-market losses.
Japanese corporations in various sectors have also suffered from property damage, as well as business interruption and contingent business interruption losses. These losses were caused not only by the events themselves, but also by continued power shortages related to the nuclear power generation disruption. Catastrophe bonds can potentially provide viable options for such corporations as a means to mitigate their exposures in future earthquakes.
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Aon Benfield Securities
Australia Flooding12
Beginning in December 2010, persistent heavy rains brought major flooding across eastern Australia. As the drenching rain continued throughout the month of January 2011, 36 people died and dozens more were injured in what became, in economic terms, “the costliest natural disaster in Australian history.” The most affected areas were Queensland, Victoria and New South Wales, though Queensland bore the major brunt of the damage. More than 2.1 million people were impacted by flash flooding from dozens of major rivers and tributaries overflowing their banks. Hundreds of cities, towns and villages were flooded, including Brisbane, the capital of Queensland. There was extensive damage to property, the transportation infrastructure, the coal mining industry and agriculture. Preliminary assessments of economic damages were listed at A$5.6 billion ($5.7 billion) by the government, though economists estimated that total economic losses could reach A$20 billion ($20.4 billion13). The Insurance Council of Australia (ICA) declared four separate catastrophes during the floods. More than 38,460 claims had been filed in Queensland (including Brisbane, Lockyer Valley and Toowoomba) with an estimated value of A$1.5 billion ($1.5 billion). For Victoria, the ICA reported 4,780 claims with payouts totaling A$69.0 million ($70.2 million14).
New Zealand Earthquake15
A 6.3-magnitude earthquake struck New Zealand’s South Island on February 22, 2011, causing widespread damage, fatalities and injuries. More than 180 people were killed and about 2,000 injured. The epicenter was near the suburb of Lyttleton in Christchurch, at a shallow depth of 3.1 miles. Extensive damage occurred throughout Christchurch as buildings collapsed into roads; parked cars were buried under rubble; water, sewer and gas lines ruptured; streets and sidewalks split; bridges collapsed; and fires scattered in the city. Churches, government buildings, historic buildings, offices in the central business district, homes and schools were either destroyed or sustained severe damage. According to the New Zealand government, the total estimated economic impact from the earthquake was between NZ$10 to 15 billion ($7.5 to $11.3 billion16).
On June 13, 2011, the greater Christchurch region was struck by two aftershocks (magnitudes 5.5 and 6.0 respectively), leaving at least one person dead and 46 more injured, and bringing more damage to the area. In addition to the two shocks, several smaller tremors (ranging from magnitudes 3.4 to 4.9) also rattled the region in the following days. According to the U.S. Geological Survey, at least 487,000 residents in New Zealand felt various levels of shaking during the 6.0-magnitude aftershock.
12 Data obtained from Monthly Cat Recap, Impact Forecasting LLC13 Converted at $1 = A$ 1.0187 and $1 = NZ$ 0.7523 as of February 28, 201114 Ibid15 Data obtained from Monthly Cat Recap, Impact Forecasting LLC16 Converted at $1 = A$ 1.0187 and $1 = NZ$ 0.7523 as of February 28, 2011
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Extreme Mortality, Longevity, and Health Risks
Recently, the life market has expanded significantly to provide coverage not only for extreme mortality, but also for longevity and health risks. For the 12-month period ending June 30, 2011, four issuances came to market securing a total of $525 million in capacity, compared to just $50 million in the prior year period, with just a single issuance. Notably, a new sponsor, Aetna Life, was one of the four.
2011 ILS Life Transaction Summary (Year ending June 30)
Program Series Class Peril Issue Size ($MM)
Trigger Collateral
Vita Capital IV Ltd Series III Class EExtreme Mortality
100.0 Index IBRD Notes
Vita Capital IV Ltd Series IV Class EExtreme Mortality
75.0 Index IBRD Notes
Vitality Re Limited Series 2010-1 Class A Health MBR 150.0 Indemnity TPR
Kortis Capital Ltd. Series 2010-1 Class E Longevity 50.0 Index IBRD Notes
Vitality Re II Limited Series 2011-1 Class A Health MBR 110.0 Indemnity TPR
Vitality Re II Limited Series 2011-1 Class B Health MBR 40.0 Indemnity TPR
Total 525.0
Source: Aon Benfield Securities
Frequent sponsor Swiss Re returned in the fourth quarter seeking coverage for extreme mortality risk for the seventh time since December 2003. The $175 million Vita Capital IV Ltd. Series III transaction provides protection against this risk in Japan and the U.S., while the Series IV bonds provides coverage for Canada and Germany. As a result of the Great East Japan Earthquake, the Series III bond was downgraded one notch by S&P in June 2011 to BB.
Later in the fourth quarter, Swiss Re successfully closed Kortis, securing $50 million in longevity improvement protection for the U.S. and U.K. Aging populations and the associated cost are increasingly becoming a concern for life companies. The recovery mechanism is based on the difference in the annualized mortality improvement of U.K. males between the ages of 75 and 85 and of U.S. males between 55 and 65 over an eight-year risk period, using publicly reported data. This new coverage highlighted the ability for investors to accept new risks.
Vitality Re was launched in December for new sponsor Aetna Life, further highlighting interest in life and health risks. Initially, two tranches came to market; however only the less risky Class A notes closed for $150 million. The transaction, modeled by Milliman Inc., provides stop loss protection for Aetna Life based on their actual MBR. Aetna Life returned to the market in April 2011 and secured an additional $150 million in capacity across two tranches, as investors proved their ongoing acceptance for this type of risk.
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An Interview with Peter Nakada, Managing Director of RiskMarkets, Risk Management Solutions1. What were your expectations for market reaction to the release of version
11.0 of the U.S. Hurricane Model in February 2011?
I’ll take the liberty of restating what I think is behind this question: “Did you know the changes to your U.S. Hurricane Model would have such a dramatic impact on the ILS market? If so, why did you change the model so much?” The short answer is that as modelers we have a responsibility to build our models independently from any market considerations. RMS brings the best data together with the best science and analytics to produce an unbiased view of risk.
Furthermore, the RiskMarkets group at RMS is kept deliberately separate from the modeling teams. This means we receive information on the new release at the same time external clients do. When we discovered the magnitude of the changes, we prepared for a strong market reaction — especially from would-be sponsors who were faced with the possibility of significantly higher expected losses compared to the old model.
Some have asked why we didn’t hold back and introduce incremental changes to the model over time. This is simply against our philosophy — we don’t withhold information available to us that could help the market make better risk decisions.
2. Would you provide some color on market reaction of discussions with users following the new model release — insurance companies, reinsurers and catastrophe bond sponsors and investors?
The market reaction to the models pretty much followed five of what are commonly referred to as Seven Stages of Grief and Loss. In this case, the market was mourning the loss of RMS version 10.0.
• Shock and Disbelief — “You can’t be serious?”
• Denial — At July 1 renewals, the market reaction was barely noticeable. Reinsurers spoke about RMS version 11.0, but from a pricing and portfolio management perspective they were acting as if it didn’t exist. In the ILS market, secondary market prices seemed unaffected by the new model. We also heard that bonds were changing hands at pre-version 11.0 seasonally adjusted prices.
• Anger — “How could you do this to us?” After clients had a chance to evaluate the impact on their risk and capital requirements, some were upset. We spent a great deal of time with senior-level clients explaining that we had their best interests in mind, and that this view of risk could help them make smart underwriting and capacity management decisions. Most meetings ended with the client understanding that the onus was on them to make the best use of this information, rather than being upset with us for providing it to them.
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• Bargaining — When clients realized that our science was sound, “How about we use the long-term rates instead of the medium-term rates and dial down the storm surge leakage assumptions?” Version 11.0 allows users to turn the dials to better reflect their own risks; we have advised clients to tailor the modeling to fit their books, but also to back up any assumptions with hard data.
• Acceptance and Hope — The majority of clients have come to terms with the science of the new model, and crafted plans on how to work this new view of risk into their underwriting and portfolio management.
3. Would you explain some of the largest drivers of model change, and their impact on specific regions, such as Florida, Texas, Mid-Atlantic? What about the impact on commercial lines versus personal lines in those regions? Would you also provide some general commentary about coastal and non-coastal exposed business?
The four largest drivers of loss are:
• Medium-term activity rates — We altered our methodology to provide the best predictive power for each of six different regions. While the overall activity rate didn’t change much, more of the rate is weighted toward higher intensity storms (Category 3 – 5) and Cape Verde storms which favor Florida and the Gulf States.
• Industry exposure database — RMS has adopted new higher resolution datasets (i.e. property by property information on the building stock and values), and a full bottom-up replacement cost methodology for calculating industry exposures, which results in an increase in estimated total insured values and industry loss.
• Hazard and vulnerability — Our new wind field model indicates that winds decay more slowly as they move inland, founded on the results of a three-year R&D program conducted with the University of Miami. This change increases the risk for inland exposures across the U.S. hurricane states. Our new vulnerability curves show the highest increases in Texas and the Gulf, based on research post-Ike into building quality standards and the impacts of high-humidity causing more rapid deterioration of certain types of roofs.
• Storm surge — Our new storm surge model simulates wave formation (from behavior of storms over the ocean, the flow of water in different coastal topology (e.g., bays and inlets), and simulates the buildup of surge over the entire lifecycle of the hurricane. This better captures the disproportionately large surges from storms such as Hurricanes Ike and Katrina. This new approach shows more damage from catastrophic surges — resulting in higher industry loss risk.
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Aon Benfield Securities
4. Would you provide some color on the more recent release of the Europe Windstorm Model?
The new RMS® Europe Windstorm Model now provides coverage across 15 countries, including three new Eastern European countries: Poland, Slovakia and the Czech Republic. Changes are driven by analysis of over 2 million individual claims since the last model update in 2006 and significant improvements in computing power that enable us to produce much more realistic event simulations. Compared to version 11.0 of the U.S. Hurricane Model release, the market impact of the Europe Windstorm release was less eventful. While components of the model changed (hazard up for return periods less than 50 years, hazard down for return periods greater than 50 years, vulnerability up across the board), the net impact on the ILS market was minimal (see figure below):
• PERILS industry bonds were virtually unchanged
• Parametric and Paradex bonds experienced moderate declines in expected loss
V10.0 to V11.0 Change in Expected Loss for EUWS Cat Bond
Source: RMS Analysis
5. Given market reception to version 11.0 of the U.S. Hurricane Model and ongoing discussions with users, are there any planned updates to version 11.0 of the U.S. Hurricane Model or other RMS global models?
We are confident in our version 11.0 view of risk. We will continue to help the market understand and implement this new view of risk — but we will not change it until we have significant new data or science that would warrant a further update to the model
v11
Exp
ecte
d L
oss
Perils
Parametric
Paradex
0%
2%
4%
6%
8%
10%
10%8%6%4%2%0%
v10 Expected Loss
Insurance-Linked Securities 2011
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6. Looking forward, what modeling issues will the ILS markets need to contemplate?
We believe the biggest modeling issue the natural catastrophe ILS market needs to contemplate is how to deal with significantly different views of risk in the market. When the three modeling firms are fairly close in their risk assessments, it is easy for the market to adopt technical pricing rules of thumb. However, with RMS version 11.0 estimating expected losses twice of what other modelers are showing, investors will need to have the sophistication to take both of these measures as inputs and develop an informed internal view of the risk.
Looking outside the natural catastrophe ILS market, we believe the next big thing is longevity risk. We are excited that S&P assigned a BB+ rating to Swiss Re’s Kortis transaction, based on output from the RMS Longevity Model. The combination of transparent accounting (pension liability risk marked-to-market through the income statement), low interest rates, and awareness of longevity risk makes conditions ripe for this market to take off. The challenge for both RMS and the ILS market is to get familiar with this new type of model so that the capital markets can provide the capacity to meet this market’s needs.
7. What are your plans to release a new Japanese earthquake model that incorporates tsunami risk?
Following the recent earthquakes in Japan and Chile, we plan to enhance our tsunami modeling capabilities. Currently, we provide tsunami accumulation footprints for a set of scenarios impacting the U.S. Pacific Northwest, Portugal, and New Zealand. Our first priority is to develop a suite of tsunami scenarios resulting from seismic activity in the Nankai Trough and the Japan Trench. After that, we plan to look at tsunami risk in the Western U.S. and Canada.
The scientific community was collectively surprised at the magnitude of the Japan Earthquake. The Japanese research community is now re-evaluating seismic hazard, with a goal to release a revised view of Japanese earthquake hazard through the Earthquake Research Committee in April 2013. RMS intends to release a new Japan earthquake model, linked to a stochastic tsunami model, after the hazard update.
8. Will the severe liquefaction in the Christchurch event result in a reassessment of liquefaction risk in earthquake models?
The Christchurch event triggered an investigation into how to treat areas of very high susceptibility to liquefaction. Because the Christchurch water table is so shallow (less than 3 feet deep) it experienced extreme liquefaction impacting structures, contents, infrastructure, and roadways, as well as flooding by ejected water.
In light of the Christchurch earthquake sequence, RMS is re-evaluating the modeling of liquefaction, and may add an extreme susceptibility class to account for areas with very shallow water tables. RMS researchers continue to work to identify other regions that would be classified for extreme susceptibility.
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Appendix ICatastrophe Bond Issuance Statistics
As of June 2011
Source: Aon Benfield Securities
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Outstanding Catastrophe Bond Volume, 2001-2011 (Years ending June 30)
Source: Aon Benfield Securities
Catastrophe Bond Issuance By Year (Years ending June 30)
Source: Aon Benfield Securities
Catastrophe Bond Issuance By Half-Year
Source: Aon Benfield Securities
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
20112010200920082007200620052004200320022001$
Mill
ion
s
PropertyOutstanding
Life / HealthOutstanding
CumulativePropertyBonds
TotalCumulativeBonds
2,075 2,589 3,0053,876
4,7416,608
12,911
16,155
13,249 13,16711,504
4,6614,382
1,780
5,914
8,145
3,279
1,4991,144 998 1,011
1,958
$ M
illio
ns
PropertyIssuance
Life / HealthIssuance
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
20112010200920082007200620052004200320022001
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2011201020092008200720062005
$ M
illio
ns
883
2,302
4,976
2,510 2,6501,757
977
3,168
3,404
320
1,460
2,011
2,625
January - June 2011
July - December 2010
45
Aon Benfield Securities
45
Aon Benfield Securities
Catastrophe Bonds Maturing By Year (Years ending June 30)
Source: Aon Benfield Securities
Aon Benfield All Bond Indices versus Financial Benchmarks
Source: Aon Benfield Securities, Bloomberg
0
1,000
2,000
3,000
4,000
5,000
6,000
20132012201120102009200820072006
3,900
100
2,483
329
5,674
3,939
4,531
155
804
371
1,412 1,442
400
2,670
$ M
illio
ns
PropertyMaturities
Life / HealthMaturities
All Bond
3 Year U.S.Corporate BB+
ABS 3-5 Yrs,Fixed Rate
CMBS FixedRate 3-5 Yrs
S&P 500
2010 2011200920082007200620052004200320022001
Tota
l Ret
urn
150%
120%
90%
60%
30%
0%
-30%
-60%
Insurance-Linked Securities 2011
46
Aon Benfield ILS Indices
Source: Aon Benfield Securities
Catastrophe Bond Issuance By Peril (Years ending June 30)
Source: Aon Benfield Securities
Investor By Category (Years ending June 30)
Source: Aon Benfield Securities
2010 2011200920082007200620052004200320022001To
tal R
etur
n
150%
120%
90%
60%
30%
0%
All Bond
U.S. Hurricane
U.S. EQ
BB-rated
46%
15%
7%
19%
2010
U.S. Hurricane
Life / Health
Japan
U.S. Other
EU Windstorm
U.S. Earthquake
54%29%
8%1%6%
2011
1% 1% 1%
Rest of World
12%
2010
Institutional
Hedge Fund
Mutual Fund
Reinsurer
Catastrophe Fund
2011
34%
5%
10%
7%
44%
39%
6%
4%
20% 31%
47
Aon Benfield Securities
Investor By Country (Years ending June 30)
Source: Aon Benfield Securities
U.S. Hurricane Model Market Share
Source: Aon Benfield Securities
Catastrophe Bond Issuance By Collateral Structure (12 months ending June 30)
Source: Aon Benfield Securities
2010
U.S.
Other
Bermuda
UK
Switzerland
2011
43%
24%
5%
10%
18%
47%
7%
5%8%
33%
July - December 2010
RMS
EQE
AIR
January - June 2011
19%
81%
49.5%
20.8%
29.7%
11%
89%
17%
21%62%
Money Market Funds
Medium Term Notes
Tri-Party Repurchases
20112010
Insurance-Linked Securities 2011
48
49
Aon Benfield Securities
Appendix IIILS Market Transaction Summary
As of June 2011
Source: Aon Benfield Securities
Insurance-Linked Securities 2011
50
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Dec-96 St Paul Re U.K. George Town Re, Ltd.
Worldwide All Perils incl.
Marine & Aviation
Indemnity $44,500
Dec-96 St Paul Re U.K.* George Town Re, Ltd.
Worldwide All Perils incl.
Marine & Aviation
Indemnity $24,000 Aaa AAA
Jun-97United States Automobile Association
Residential Reinsurance
LimitedClass A-1 US HU Indemnity $163,800 Aaa AAA
Jun-97United States Automobile Association
Residential Reinsurance
LimitedClass A-2 US HU Indemnity $313,180 Ba2 BB BB
Oct-97 Swiss Re SR Earthquake Fund, Ltd. Class A-1 US EQ Industry Index $42,000 Baa3 BBB-
Oct-97 Swiss Re* SR Earthquake Fund, Ltd. Class A-2 US EQ Industry Index $20,000 Baa3 BBB-
Oct-97 Swiss Re SR Earthquake Fund, Ltd. Class B US EQ Industry Index $60,300 Ba1 BB
Oct-97 Swiss Re SR Earthquake Fund, Ltd. Class C US EQ Industry Index $14,700 Ba3 B
Nov-97Tokio Marine &
Nichido Fire Insurance Co., Ltd.
Parametric Re, Ltd. JP EQ Parametric $80,000 Ba2
Nov-97Tokio Marine &
Nichido Fire Insurance Co., Ltd.
Parametric Re, Ltd. Parametric $20,000 Baa3
Mar-98Centre Solutions
(Bermuda) Limited (Zurich Group)
Trinity Re, Ltd. Class A-1 US HU Indemnity $10,467 Aaa AAA
Mar-98Centre Solutions
(Bermuda) Limited (Zurich Group)
Trinity Re, Ltd. Class A-2 US HU Indemnity $61,533 Ba3 BB
Jun-98United States Automobile Association
Residential Reinsurance
LimitedUS HU Indemnity $450,000 Ba2 BB BB
Jun-98The Yasuda Fire and
Marine Insurance Company Limited
Pacific Re, Ltd. JP TY Indemnity $80,000 Ba3 BB-
Jul-98United States Fidelity
and Guaranty Company
Mosaic Re, Ltd. Class A US HU, EQ, ST Indemnity $24,000
Jul-98United States Fidelity
and Guaranty Company
Mosaic Re, Ltd. Class B US HU, EQ, ST Indemnity $21,000
Jul-98United States Fidelity
and Guaranty Company
Mosaic Re, Ltd. Indemnity $9,000
Dec-98Centre Solutions
(Bermuda) Limited (Zurich Group)
Trinity Re 1999, Ltd. Class A-1 US HU Indemnity $2,385 Aaa AAA
Dec-98Centre Solutions
(Bermuda) Limited (Zurich Group)
Trinity Re 1999, Ltd. Class A-2 US HU Indemnity $51,615 Ba3 BB
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
51
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Feb-99United States Fidelity
and Guaranty Company
Mosaic Re II, Ltd. Class A US HU, EQ, ST Indemnity $25,000
Feb-99United States Fidelity
and Guaranty Company
Mosaic Re II, Ltd. Class B US HU, EQ, ST Indemnity $20,000
Mar-99 Kemper Domestic, Inc. US EQ Indemnity $80,000 Ba2 BB+
Mar-99 Kemper* Domestic, Inc. Indemnity $20,000
Apr-99 Sorema S..A Halyard Re B.V. EU/JP Wind, JP EQ Indemnity $17,000
May-99 Oriental Land Co., Ltd. Concentric, Ltd. JP EQ Parametric $100,000 Ba1 BB+
Jun-99United States Automobile Association
Residential Reinsurance
LimitedUS HU Indemnity $200,000 Ba2 BB
Jun-99
Gerling-Konzern Globale
Rückversicherungs-Aktienfesellschaft
Juno Re, Ltd. US HU Indemnity $80,000 BB BB+
Nov-99 American Re Gold Eagle Capital Limited Class A US HU, EQ Modeled Loss $50,000 Baa3 BBB-
Nov-99 American Re Gold Eagle Capital Limited Class B US HU, EQ Modeled Loss $126,600 Ba2 BB
Nov-99 American Re* Gold Eagle Capital Limited Modeled Loss $5,500 Ba1 BB+
Nov-99 American Re* Gold Eagle Capital Limited Modeled Loss $3,600 BB+
Nov-99
Gerling-Konzern Globale
Rückversicherungs-Aktienfesellschaft
Namazu Re, Ltd. JP EQ Modeled Loss $100,000 BB
Mar-00 Lehman Re Ltd. Seismic Limited US EQ Industry Index $145,500 Ba2 BB+
Mar-00 Lehman Re Ltd.* Seismic Limited Industry Index $4,500
Mar-00 SCORAtlas
Reinsurance p.l.c.
Class A EU Wind. CA/JP EQ Indemnity $70,000 BBB+ BBB+
Mar-00 SCORAtlas
Reinsurance p.l.c.
Class B EU Wind. CA/JP EQ Indemnity $30,000 BBB- BBB-
Mar-00 SCORAtlas
Reinsurance p.l.c.
Class C EU Wind. CA/JP EQ Indemnity $100,000 B- B-
Apr-00 Sorema S..A Halyard Re B.V. EU/JP Wind, JP EQ Indemnity $17,000
May-00 State Farm Companies Alpha Wind 2000-A Ltd. US HU Indemnity $52,500 BB+
May-00 State Farm Companies*
Alpha Wind 2000-A Ltd. Indemnity $37,500 BB
Jun-00United States Automobile Association
Residential Reinsurance
2000 LimitedUS HU Indemnity $200,000 Ba2 BB+
Jul-00 Vesta Fire Insurance Corporation NeHi, Inc. US HU Modeled Loss $41,500 Ba3 BB
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
Insurance-Linked Securities 2011
52
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jul-00 Vesta Fire Insurance Corporation* NeHi, Inc. Modeled Loss $8,500
Nov-00 Assurances Generales de France I.A.R.T.
Mediterranean Re p.l.c. Class A EU Wind, EQ Modeled Loss $41,000 Baa3 BBB+ BBB
Nov-00 Assurances Generales de France I.A.R.T.
Mediterranean Re p.l.c. Class B EU Wind, EQ Modeled Loss $88,000 Ba3 BB+ BB+
Dec-00 Munich RePRIME Capital CalQuake &
EuroWind Ltd.
US EQ/ EU Wind
Parametric Index $129,000 Ba3 BB+ BB
Dec-00 Munich Re*PRIME Capital CalQuake &
EuroWind Ltd. Class B Parametric
Index $6,000
Dec-00 Munich Re PRIME Capital Hurricane Ltd. US HU Parametric
Index $159,000 Ba3 BB+ BB
Dec-00 Munich Re* PRIME Capital Hurricane Ltd. Class B Parametric
Index $6,000
Feb-01 Swiss Re Western Capital Limited US EQ Industry Index $97,000 Ba2 BB+
Feb-01 Swiss Re* Western Capital Limited Industry Index $3,000
Mar-01 American ReGold Eagle
Capital 2001 Limited
US HU, EQ Modeled Loss $116,400 Ba2 BB+
Apr-01 Sorema SA Halyard Re B.V. EU/JP Wind, JP EQ Indemnity $17,000
May-01 Swiss Re* SR Wind Ltd. Class B-1 Parametric Index $1,800 BB BB
May-01 Swiss Re* SR Wind Ltd. Class B-2 Parametric Index $1,800 BB BB
May-01 Swiss Re SR Wind Ltd. Class A-1 US/EU Wind Parametric Index $58,200 BB+ BB+
May-01 Swiss Re SR Wind Ltd. Class A-2 US/EU Wind Parametric Index $58,200 BB+ BB+
Jun-01United States Automobile Association
Residential Reinsurance 2001 Limited
US HU Indemnity $150,000 Ba2 BB+
Jun-01 Zurich Insurance Company* Trinom Ltd. Modeled Loss $4,856 B2 B+
Jun-01 Zurich Insurance Company Trinom Ltd. Class A-1 US/EU Wind,
US EQ Modeled Loss $60,000 Ba2 BB BB-
Jun-01 Zurich Insurance Company Trinom Ltd. Class A-2 US/EU Wind,
US EQ Modeled Loss $97,000 Ba1 BB+ BB
Dec-01 SCORAtlas
Reinsurance II p.l.c.
Class A EU Wind. CA/JP EQ
Parmetric/Parametric
Index$50,000 A3 A
Dec-01 SCORAtlas
Reinsurance II p.l.c.
Class B EU Wind. CA/JP EQ
Parmetric/Parametric
Index$100,000 Ba2 BB+
Dec-01 Lehman Re Ltd. Redwood Capital I, Ltd. US EQ Industry Index $160,050 Ba2 BB+
Dec-01 Lehman Re Ltd.* Redwood Capital I, Ltd. Industry Index $4,950
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
53
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Mar-02 Lehman Re Ltd. Redwood Capital II, Ltd US EQ Industry Index $194,000 Baa3 BBB-
Mar-02 Lehman Re Ltd.* Redwood Capital II, Ltd Industry Index $6,000 Ba1 BBB-
Apr-02 Lloyd's Syndicate 33 (Hiscox)
St. Agatha Re Ltd. US EQ Modeled Loss $33,000 BB+
May-02 Nissay Dowa General Insurance Co., Ltd. Fujiyama Ltd. JP EQ Parametric $67,900 BB+
May-02 Nissay Dowa General Insurance Co., Ltd.* Fujiyama Ltd. Parametric $2,100 BB
May-02United States Automobile Association
Residential Reinsurance 2002 Limited
US HU Indemnity $125,000 Ba3 BB+
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class A US HU Parametric
Index $85,000 Ba3 BB+
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class B EU Wind Parametric
Index $50,000 Ba3 BB+
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class C US EQ Parametric
Index $30,000 Ba3 BB+
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class D US EQ Parametric
Index $40,000 Baa3 BBB-
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class E JP EQ Parametric
Index $25,000 Ba3 BB+
Jun-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-1 Class F US/EU Wind,
US/JP EQParametric
Index $25,000 Ba3 BB+
Sep-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-2 Class B EU Wind Parametric
Index $5,000 Ba3 BB+
Sep-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-2 Class C US EQ Parametric
Index $20,500 Ba3 BB+
Sep-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-2 Class D US EQ Parametric
Index $1,750 Baa3 BBB-
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class A US HU Parametric
Index $8,500 Ba3 BB+
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class B EU Wind Parametric
Index $21,000 Ba3 BB+
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class C US EQ Parametric
Index $15,700 Ba3 BB+
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class D US EQ Parametric
Index $25,500 Baa3 BBB-
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class E JP EQ Parametric
Index $30,550 Ba3 BB+
Dec-02 Swiss Re PIONEER 2002 Ltd.
Series 2002-3 Class F US/EU Wind,
US/JP EQParametric
Index $3,000 Ba3 BB+
Dec-02 Vivendi Universal, S.A. Studio Re Ltd. US EQ Parametric Index $150,000 Ba2 BB+
Dec-02 Vivendi Universal, S.A.* Studio Re Ltd. US EQ Parametric
Index $25,000 B1 BB
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class A US HU Parametric
Index $6,500 Ba3 BB+
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class B EU Wind Parametric
Index $8,000 Ba3 BB+
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
Insurance-Linked Securities 2011
54
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class C US EQ Parametric
Index $6,500 Ba3 BB+
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class D US EQ Parametric
Index $5,500 Baa3 BBB-
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class E JP EQ Parametric
Index $8,000 Ba3 BB+
Mar-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-1 Class F US/EU Wind,
US/JP EQParametric
Index $8,140 Ba3 BB+
May-03United States Automobile Association
Residential Reinsurance 2003 Limited
US HU, EQ Indemnity $160,000 Ba2 BB+
Jun-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-2 Class A US HU Parametric
Index $9,750 Ba3 BB+
Jun-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-2 Class B EU Wind Parametric
Index $12,250 Ba3 BB+
Jun-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-2 Class C US EQ Parametric
Index $7,250 Ba3 BB+
Jun-03 Swiss Re PIONEER 2002 Ltd.
Series 2003-2 Class D US EQ Parametric
Index $2,600 Baa3 BBB-
Jun-03 Zenkyoren Phoenix Quake Ltd. JP EQ Parametric
Index $192,500 Baa3 BBB+
Jun-03 Zenkyoren Phoenix Quake Wind II Ltd. JP TY, EQ Parametric
Index $85,000 Ba1 BBB-
Jun-03 Zenkyoren Phoenix Quake Wind Ltd. JP TY, EQ Parametric
Index $192,500 Baa3 BBB+
Jul-03 Swiss Re Arbor I Ltd. Series 1 US/EU Wind, CA/JP EQ
Parametric Index $95,000 B
Jul-03 Swiss Re Arbor II Ltd. Series 1 US/EU Wind, CA/JP EQ
Parametric Index $26,500 A1 A+
Jul-03 Swiss Re Palm Capital Ltd. Series 1 US HU Parametric
Index $22,350 Ba3 BB+
Jul-03 Swiss Re Oak Capital Ltd. Series 1 EU Wind Parametric Index $23,600 Ba3 BB+
Jul-03 Swiss Re Sequoia Capital Ltd. Series 1 US EQ Parametric
Index $22,500 Ba3 BB+
Jul-03 Swiss Re Sakura Capital Ltd. Series 1 JP EQ Parametric
Index $14,700 Ba3 BB+
Aug-03Central Reinsurance
Corporation (for TREIP)
Formosa Re Ltd. Taiwan EQ Indemnity $100,000 NR
Sep-03 Swiss Re Arbor I Ltd. Series 2 US/EU Wind, CA/JP EQ
Parametric Index $60,000 B
Dec-03 Swiss Re Palm Capital Ltd. Series 2 US HU Parametric
Index $19,000 Ba3 BB+
Dec-03 Swiss Re Arbor I Ltd. Series 3 US/EU Wind, CA/JP EQ
Parametric Index $8,850 B
Dec-03 Swiss Re PIONEER 2002 Ltd. US EQ Parametric
Index $51,000 Baa3 BBB-
Dec-03 Electricite de France Pylon Ltd. Class A EU Wind Parametric Index € 70,000 A2 BBB+
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
55
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Dec-03 Electricite de France Pylon Ltd. Class B EU Wind Parametric Index € 120,000 Ba1 BB+
Dec-03 Swiss Re Redwood Capital III, Ltd. US EQ Industry Index $150,000 Ba1 BB+
Dec-03 Swiss Re Redwood Capital IV, Ltd. US EQ Industry Index $200,000 Baa3 BBB-
Mar-04 Swiss Re Oak Capital Ltd. Series 2 EU Wind Parametric Index $24,000 Ba3 BB+
Mar-04 Swiss Re Sequoia Capital Ltd. Series 2 US EQ Parametric
Index $11,500 Ba3 BB+
Mar-04 Swiss Re Arbor Ltd. Series 4 US/EU Wind, CA/JP EQ
Parametric Index $21,000 B
May-04United States Automobile Association
Residential Reinsurance
2004 LimitedClass A US HU, EQ Indemnity $127,500 BB
May-04United States Automobile Association
Residential Reinsurance
2004 LimitedClass B US HU, EQ Indemnity $100,000 B
Jun-04 Converium Ltd. Helix 04 Limited US/EU Wind, US/JP EQ Modeled Loss $100,000 BB+
Jun-04 Swiss Re Arbor Ltd. Series 5 US/EU Wind, CA/JP EQ
Parametric Index $18,000 B
Jun-04 Swiss Re Gi Capital Ltd. JP EQ Parametric Index $125,000 BB+
Sep-04 Swiss Re Oak Capital Ltd. Series 3 EU Wind Parametric Index $10,500 Ba3 BB+
Sep-04 Swiss Re Sequoia Capital Ltd. Series 3 US EQ Parametric
Index $11,000 Ba3 BB+
Sep-04 Swiss Re Arbor Ltd. Series 6 US/EU Wind, CA/JP EQ
Parametric Index $31,800 B
Nov-04 Hartford Fire Insurance Company
Foundation Re Ltd.
Series 2004-I Class A US HU Industry Index $180,000 BB+
Nov-04 Hartford Fire Insurance Company
Foundation Re Ltd.
Series 2004-I Class B US HU, EQ Industry Index $67,500 BBB+
Dec-04 Swiss Re Arbor I Ltd. Series 7 US/EU Wind, CA/JP EQ
Parametric Index $15,000 B
Dec-04 Swiss Re Redwood Capital V, Ltd. US EQ Industry Index $150,000 Ba2 BB+
Dec-04 Swiss Re Redwood Capital VI, Ltd. US EQ Industry Index $150,000 Ba2 BB+
Mar-05 Swiss Re Arbor I Ltd. Series 8 US/EU Wind, CA/JP EQ
Parametric Index $20,000 B
May-05United States Automobile Association
Residential Reinsurance 2005 Limited
Class A US HU, EQ Indemnity $91,000 BB
May-05United States Automobile Association
Residential Reinsurance 2005 Limited
Class B US HU, EQ Indemnity $85,000 B
Jun-05 Factory Mutual Insurance Company
Cascadia Limited US EQ Parametric $300,000 BB+ BB
Jun-05 Swiss Re Arbor I Ltd. Series 9 US/EU Wind, CA/JP EQ
Parametric Index $25,000 B
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
Insurance-Linked Securities 2011
56
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jul-05 Zurich American Insurance Company
KAMP Re 2005 Ltd. US HU, EQ Indemnity $190,000 BB+
Nov-05 PXRE Reinsurance Ltd.Atlantic &
Western Re Limited
Class A US/EU Wind Modeled Loss $100,000 BB+ BB
Nov-05 PXRE Reinsurance Ltd.Atlantic &
Western Re Limited
Class B US/EU Wind, US HU Modeled Loss $200,000 B+ B
Nov-05 Munich Re Aiolos Ltd. EU Wind Parametric Index € 110,000 BB+
Dec-05 Swiss Re Arbor I Ltd. Series 10 US/EU Wind, CA/JP EQ
Parametric Index $18,000 B
Dec-05 PXRE Reinsurance Ltd.Atlantic &
Western Re II Limited
Class A US/EU Wind, US EQ Modeled Loss $125,000 BB+
Dec-05 PXRE Reinsurance Ltd.Atlantic &
Western Re II Limited
Class B US/EU Wind, US EQ Modeled Loss $125,000 BB+
Dec-05 Montpelier Reinsurance Ltd.
Champlain Limited Class A US/JP EQ Modeled Loss $75,000 B B-
Dec-05 Montpelier Reinsurance Ltd.
Champlain Limited Class B US HU, EQ Modeled Loss $15,000 B+ B-
Jan-06 Swiss Re Australis Ltd. Series 1 AU CY, EQ Parametric Index $100,000 BB
Feb-06 Swiss Re Redwood Capital VII, Ltd. US EQ Industry Index $160,000 BB+
Feb-06 Swiss Re Redwood Capital VIII, Ltd. US EQ Industry Index $65,000 BB+
Feb-06 Hartford Fire Insurance Company
Foundation Re Ltd.
Series 2006-I Class D US HU, EQ Industry Index $105,000 BB
May-06 The Fund for Natural Disasters CAT-Mex Ltd. Class A Mexico EQ Parametric $150,000 BB+
May-06 The Fund for Natural Disasters CAT-Mex Ltd. Class B Mexico EQ Parametric $10,000 BB+
May-06 ACE American Insurance Company Calabash Re Ltd. Series
2006-I Class A-1 US HU Industry Index $100,000 BB
May-06United States Automobile Association
Residential Reinsurance
2006 LimitedClass A US HU, EQ Indemnity $47,500 B
May-06United States Automobile Association
Residential Reinsurance
2006 LimitedClass C US HU, EQ Indemnity $75,000 BB+
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 2 Class D US HU Industry Index $10,250 B
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 2 Class E US HU Industry Index $35,000 NR
Jun-06 Swiss Re Successor Japan Quake Ltd. Series 2 Class C JP EQ Modeled Loss $3,000 B
Jun-06 Swiss Re Successor Euro Wind Ltd. Series 2 Class A EU Wind Parametric
Index $3,000 BB
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
57
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jun-06 Swiss Re Successor Euro Wind Ltd. Series 2 Class C EU Wind Parametric
Index $3,000 B
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 1 Class B US HU Industry Index $14,000 BB-
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 1 Class C US HU Industry Index $7,250 B
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 1 Class D US HU Industry Index $34,250 B
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 1 Class E US HU Industry Index $5,000 NR
Jun-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 1 Class F US HU Industry Index $54,000 B
Jun-06 Swiss ReSuccessor Hurricane
Modeled Ltd.Series 1 Class B US HU Modeled Loss $42,250 BB-
Jun-06 Swiss ReSuccessor Cal Quake
Parametric Ltd.Series 1 Class A US EQ Parametric
Index $47,500 BB
Jun-06 Swiss Re Successor Japan Quake Ltd. Series 1 Class A JP EQ Modeled Loss $103,470 BB
Jun-06 Swiss Re Successor Japan Quake Ltd. Series 1 Class B JP EQ Modeled Loss $26,250 BB-
Jun-06 Swiss Re Successor Japan Quake Ltd. Series 2 Class C JP EQ Modeled Loss $70,750 B
Jun-06 Swiss Re Successor Euro Wind Ltd. Series 1 Class A EU Wind Parametric
Index $97,130 BB
Jun-06 Swiss Re Successor Euro Wind Ltd. Series 1 Class B EU Wind Parametric
Index $18,500 BB-
Jun-06 Swiss Re Successor Euro Wind Ltd. Series 1 Class C EU Wind Parametric
Index $110,750 B
Jun-06 Swiss Re Successor II Ltd. Series 1 Class A US/EU Wind, US/JP EQ Multiple $73,200 B
Jun-06 Swiss Re Successor II Ltd. Series 1 Class E US/EU Wind, US/JP EQ Multiple $154,250 NR
Jun-06 Swiss Re Successor III Ltd. Series 1 Class A US/EU Wind, JP EQ Multiple $7,200 NR
Jun-06 Swiss Re Successor IV Ltd. Series 1 Class A US/EU Wind, US/JP EQ Multiple $30,000 B
Jun-06 Munich Re Carillon Ltd. Series 1 Class A-2 US HU Industry Index $23,500 B+
Jun-06 Munich Re Carillon Ltd. Series 1 Class B US HU Industry Index $10,000 B
Jun-06 Munich Re Carillon Ltd. Series 1 Class A-1 US HU Industry Index $51,000 B+
Jun-06 Liberty Mutual Insurance Company Mystic Re Ltd. Series
2006-1 Class A US HU Industry Index $200,000 BB+
Jun-06 Balboa Insurance Group
VASCO Re 2006 Ltd. US HU Indemnity $50,000 BB+
Jun-06 Dominion Resources DREWCAT Capital, Ltd. Class A US HU Parametric
Index $50,000 NR
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
Insurance-Linked Securities 2011
58
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jul-06 Hannover Re Eurus Ltd. EU Wind Parametric Index $150,000 BB
Aug-06 Endurance Specialty Insurance Company
Shackleton Re Limited Class A US EQ Industry Index $125,000 Bz3 BB
Aug-06 Endurance Specialty Insurance Company
Shackleton Re Limited Class B US HU Industry Index $60,000 Ba3 BB
Aug-06 Endurance Specialty Insurance Company
Shackleton Re Limited Class C US HU, EQ Industry Index $50,000 Ba2 BB+
Aug-06Tokio Marine &
Nichido Fire Insurance Co., Ltd.
Fhu-Jin Ltd. Series 1 Class B JP TY Parametric Index TRS $200,000 BB+
Aug-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 3 Class E US HU Industry Index $50,000 NR
Aug-06 Factory Mutual Insurance Company
Cascadia II Limited US EQ Parametric $300,000 BB+ BB+
Nov-06 Hartford Fire Insurance Company
Foundation Re II Ltd.
Series 2006-I Class G US (HU, EQ, ST) Industry Index $67,500 B
Nov-06 Hartford Fire Insurance Company
Foundation Re II Ltd.
Series 2006-I Class A US HU Industry Index $180,000 BB+
Nov-06 Liberty Mutual Insurance Company Mystic Re Ltd. Series
2006-2 Class A US HU Industry Index $200,000 BB+
Nov-06 Liberty Mutual Insurance Company Mystic Re Ltd. Series
2006-2 Class B US HU Industry Index $125,000 BB
Dec-06 Swiss Re Successor I Ltd. Series 1 Class B NA/EU W, CA/JP Q Multiple $4,000 NR
Dec-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 4 Class E US HU Industry Index $4,000 NR
Dec-06 Swiss Re Successor I Ltd. Series 2 Class B NA/EU W, CA/JP Q Multiple $24,500 NR
Dec-06 Swiss ReSuccessor Hurricane
Industry Ltd.Series 5 Class E US HU Industry Index $26,000 NR
Dec-06 Swiss Re Successor Euro Wind Ltd. Series 3 Class A EU Wind Parametric
Index $118,000 Ba3 BB
Dec-06 Swiss Re Successor Euro Wind Ltd. Series 3 Class C EU Wind Parametric
Index $15,000 B3 B
Dec-06 Zurich American Insurance Company Lakeside Re Ltd. US EQ Multiple $190,000 BB+
Dec-06 SCORAtlas
Reinsurance III p.l.c.
JP EQ, EU Wind Modeled Loss € 120,000 BB+
Dec-06 Swiss Re Redwood Capital IX Ltd. Series 1 Class A US EQ Parametric
Index $125,000 Ba2 BB+
Dec-06 Swiss Re Redwood Capital IX Ltd. Series 1 Class B US EQ Parametric
Index $125,000 Ba2 BB+
Dec-06 Swiss Re Redwood Capital IX Ltd. Series 1 Class C US EQ Parametric
Index $18,000 Baa3 BBB-
Dec-06 Swiss Re Redwood Capital IX Ltd. Series 1 Class D US EQ Parametric
Index $20,000 Ba3 BB
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
59
Aon Benfield Securities
Summary of Catastrophe Bonds — December 1996 through June 2011
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Dec-06 Swiss Re Redwood Capital IX Ltd. Series 1 Class E US EQ Parametric
Index $12,000 B3 B
Jan-07 ACE American Insurance Company
Calabash Re II Ltd.
Series 2006-I Class A-1 US HU Modeled Loss $100,000 BB
Jan-07 ACE American Insurance Company
Calabash Re II Ltd.
Series 2006-I Class D-1 US EQ Modeled Loss $50,000 B+
Jan-07 ACE American Insurance Company
Calabash Re II Ltd.
Series 2006-I Class E-1 US HU, EQ Modeled Loss $100,000 BB
Mar-07 Swiss Re Australis Ltd. Series 2 AU CY, EQ Parametric Index $50,000 BB
Apr-07Allianz Global
Corporate & Specialty AG
Blue Wings Ltd. Series 1 Class A US EQ, UK Flood Multiple $150,000 BB+
Apr-07 Aspen Insurance Limited Ajax Re Limited Series 1 Class A US EQ Industry Index $100,000 BB
Apr-07 Chubb Group East Lane Re Ltd. Series 2007-I Class A US HU Indemnity TRS $135,000 BB+
Apr-07 Chubb Group East Lane Re Ltd. Series 2007-I Class B US HU Indemnity TRS $115,000 BB+
May-07 Munich Re Carillon Ltd. Series 2 Class E US HU Industry Index TRS $150,000 B
May-07 The Travelers Indemnity Company
Longpoint Re Ltd.
Series 2007-1 Class A US HU Industry Index $500,000 BB+
May-07 Swiss Re Successor II Ltd. Series 2 Class A NA/EU W, CA/JP Q Multiple $100,000 B
May-07 Mitsui Sumitomo Insurance Co., Ltd. AKIBARE Ltd. Series 1 Class A JP TY Parametric
Index TRS $90,000 BB+
May-07 Mitsui Sumitomo Insurance Co., Ltd. AKIBARE Ltd. Series 1 Class B JP TY Parametric
Index TRS $30,000 BB+
May-07 Swiss Re MedQuake Ltd. Series 1 Class A EU EQ Parametric Index $50,000 BB-
May-07 Swiss Re MedQuake Ltd. Series 1 Class B EU EQ Parametric Index $50,000 B
May-07 Liberty Mutual Insurance Company Mystic Re II Ltd. Series
2007-1 US HU Industry Index TRS $150,000 B+
May-07United States Automobile Association
Residential Reinsurance 2007 Limited
Series 2007-I Class 1 US HU, EQ Indemnity $145,000 BB
May-07United States Automobile Association
Residential Reinsurance 2007 Limited
Series 2007-I Class 2 US HU, EQ Indemnity $125,000 B
May-07United States Automobile Association
Residential Reinsurance 2007 Limited
Series 2007-I Class 3 US HU, EQ Indemnity $75,000 B
May-07United States Automobile Association
Residential Reinsurance 2007 Limited
Series 2007-I Class 4 US HU, EQ Indemnity $155,000 BB+
May-07United States Automobile Association
Residential Reinsurance 2007 Limited
Series 2007-I Class 5 US HU, EQ Indemnity $100,000 BB+
Jun-07 Glacier Reinsurance AG Nelson Re Ltd. Series 2007-I Class A US/EU W, US Q Multiple $75,000 B
* Equity
Insurance-Linked Securities 2011
60
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jun-07 Allstate Insurance Company Willow Re Ltd. Series
2007-1 Class B US HU Industry Index $250,000 BB+
Jun-07 Swiss Re Spinnaker Capital Ltd.
Series 1 2007 US HU Industry Index $200,000 B1
Jun-07 Brit Insurance Limited Fremantle Limited
Series 2007-1 Class A US/EU/JP Wind,
US/JP EQ Industry Index $60,000 Aa1 AAA
Jun-07 Brit Insurance Limited Fremantle Limited
Series 2007-1 Class B US/EU/JP Wind,
US/JP EQ Industry Index $60,000 A3 BBB+
Jun-07 Brit Insurance Limited Fremantle Limited
Series 2007-1 Class C US/EU/JP Wind,
US/JP EQ Industry Index $80,000 Ba2 BB-
Jun-07 Swiss Re Spinnaker Capital Ltd.
Series 2 2007 US HU Industry Index $130,200 Ba2
Jun-07 Swiss Re FUSION 2007 Ltd. Class A JP TY, Mexico
EQParametric
Index $30,000 B
Jun-07 Swiss Re FUSION 2007 Ltd. Class B JP TY, Mexico
EQParametric
Index $80,000 B
Jun-07 Swiss Re FUSION 2007 Ltd. Class C Mexico EQ Parametric
Index $30,000 BB+
Jul-07State Farm Mutual
Automobile Insurance Company
Merna Reinsurance
Ltd.Tranche A
US/Canada (Wind, EQ, ST,
WS, WF)Indemnity $350,000 Aa2 AAA
Jul-07State Farm Mutual
Automobile Insurance Company
Merna Reinsurance
Ltd.Tranche B
US/Canada (Wind, EQ, ST,
WS, WF)Indemnity $666,600 A2 AA+
Jul-07State Farm Mutual
Automobile Insurance Company
Merna Reinsurance
Ltd.Tranche C
US/Canada (Wind, EQ, ST,
WS, WF)Indemnity $164,000 Baa2 A-
Jul-07Arrow Capital
Reinsurance Company, Limited
Javelin Re Ltd. Class A Worldwide All Perils Indemnity $94,500 A-
Jul-07Arrow Capital
Reinsurance Company, Limited
Javelin Re Ltd. Class B Worldwide All Perils Indemnity $30,750 BBB-
Jul-07 Swiss Re Spinnaker Capital Ltd.
Series 3 2007 US HU Industry Index $50,000 NR
Oct-07 East Japan Railway Company MIDORI Ltd. JP EQ Parametric TRS $260,000 BB+
Nov-07 Allianz Argos 14 GmbH Blue Fin Ltd. Series 1 Class A EU Wind Parametric Index TRS € 155,000 BB+
Nov-07 Allianz Argos 14 GmbH Blue Fin Ltd. Series 1 Class B EU Wind Parametric Index TRS $65,000 BB+
Nov-07 SCOR Global P&C SEAtlas
Reinsurance IV Limited
EU Wind, JP EQ Modeled Loss TRS € 160,000 B
Dec-07 Catlin Group Newton Re Limited
Series 2007-1 Class A US EQ Industry Index Deposit $87,500 BB+
Dec-07 Catlin Group Newton Re Limited
Series 2007-1 Class B US HU Industry Index Deposit $137,500 BB+
Dec-07 Swiss Re GlobeCat Ltd. Series LAQ Class A-1 Latin America EQ Modeled Loss TRS $25,000 Ba3e
Dec-07 Swiss Re GlobeCat Ltd. Series USW Class A-1 US HU Industry Index TRS $40,000 B3e
Dec-07 Swiss Re GlobeCat Ltd. Series CAQ Class A-1 US EQ Industry Index TRS $20,000 B1e
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
61
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Dec-07 Groupama S.A. Green Valley Ltd. Series 1 Class A EU Wind Parametric
Index TRS € 200,000 BB+
Dec-07 Swiss ReSuccessor Hurricane
Industry Ltd.Series 6 Class C US HU Industry Index TRS $30,000 B2 B
Dec-07 Swiss ReSuccessor Hurricane
Industry Ltd.Series 6 Class D US HU Industry Index TRS $30,000 B
Dec-07 Swiss Re Successor II Ltd. Series 3 Class C US/EU Wind, US/JP EQ
Parametric Index TRS $50,000
Dec-07 Swiss Re Successor II Ltd. Series 3 Class E US/EU Wind, US/JP EQ
Parametric Index TRS $50,000
Dec-07 Swiss Re Redwood Capital X Ltd. Series 1 Class A US EQ Parametric
Index TRS $25,000 Baa3
Dec-07 Swiss Re Redwood Capital X Ltd. Series 1 Class B US EQ Parametric
Index TRS $227,700 Ba2
Dec-07 Swiss Re Redwood Capital X Ltd. Series 1 Class C US EQ Parametric
Index TRS $50,200 Ba3
Dec-07 Swiss Re Redwood Capital X Ltd. Series 2 Class D US EQ Industry Index TRS $130,500 Ba3
Dec-07 Swiss Re Redwood Capital X Ltd. Series 2 Class E US EQ Industry Index TRS $45,200 B2
Dec-07 Swiss Re Redwood Capital X Ltd. Series 2 Class F US EQ Industry Index TRS $20,000 NR
Feb-08 Catlin Group Newton Re Limited
Series 2008-1 Class A US/EU/JP Wind,
US/JP EQ Indemnity TRS $150,000 BB
Mar-08 Munich Re Queen Street Ltd. Series 1 Class A EU Wind Parametric
Index TRS € 70,000 BB+
Mar-08 Munich Re Queen Street Ltd. Series 1 Class B EU Wind Parametric
Index TRS € 100,000 B
Mar-08 Chubb Group East Lane Re II Ltd.
Series 2008-I Class A
Northeast US All Natural
PerilsIndemnity TRS $75,000 BB
Mar-08 Chubb Group East Lane Re II Ltd.
Series 2008-I Class B
Northeast US All Natural
PerilsIndemnity TRS $70,000 BB
Mar-08 Chubb Group East Lane Re II Ltd.
Series 2008-I Class C US/Canada All
Natural Perils Indemnity TRS $55,000 B-
May-08 Zenkyoren Muteki Ltd. Series 2008-1 Class A JP EQ Parametric
Index TRS $300,000 Ba2
May-08
HomeWise Preferred Insurance Company
and HomeWise Insurance Company
Mangrove Re Ltd.
Series 2008-1 Class A US HU Indemnity TRS $150,000 Ba2
May-08
HomeWise Preferred Insurance Company
and HomeWise Insurance Company
Mangrove Re Ltd.
Series 2008-1 Class B US HU Indemnity TRS $60,000 B1
May-08United States Automobile Association
Residential Reinsurance
2008 Limited
Series 2008-I Class 1 US HU, EQ Indemnity TRS $125,000 BB
May-08United States Automobile Association
Residential Reinsurance
2008 Limited
Series 2008-I Class 2 US HU, EQ Indemnity TRS $125,000 B
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
Insurance-Linked Securities 2011
62
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
May-08United States Automobile Association
Residential Reinsurance
2008 Limited
Series 2008-I Class 4 US (HU, EQ, ST,
WS, WF) Indemnity TRS $100,000 BB+
May-08Flagstone Reinsurance Limited and Flagstone Reassurance Suisse SA
Valais Re Ltd. Series 2008-1 Class A US/EU/JP Wind,
US/JP EQ Indemnity TRS $64,000 Ba2
May-08Flagstone Reinsurance Limited and Flagstone Reassurance Suisse SA
Valais Re Ltd. Series 2008-1 Class C US/EU/JP Wind,
US/JP EQ Indemnity TRS $40,000 B3
Jun-08 Glacier Reinsurance AG Nelson Re Ltd. Series 2008-I Class G US HU, EQ Indemnity TRS $67,500 B3
Jun-08 Glacier Reinsurance AG Nelson Re Ltd. Series 2008-I Class H EU Wind Indemnity TRS $45,000 B3
Jun-08 Glacier Reinsurance AG Nelson Re Ltd. Series 2008-I Class I EU Wind Indemnity TRS $67,500 B1
Jun-08 Allstate Insurance Company Willow Re Ltd. Series
2008-1 Class D US HU Industry Index TRS $250,000 BB+
Jun-08 Nationwide Mutual Insurance Company
Caelus Re Limited
Series 2008-1 Class A US HU, EQ Indemnity TRS $250,000 BB+
Jun-08 Swiss Re Vega Capital Ltd.
Series 2008-I Class A US/EU/JP Wind,
US/JP EQParametric
Index TRS $21,000 A3 A-
Jun-08 Swiss Re Vega Capital Ltd.
Series 2008-I Class B US/EU/JP Wind,
US/JP EQParametric
Index TRS $22,500 Baa2 BBB
Jun-08 Swiss Re Vega Capital Ltd.
Series 2008-I Class C US/EU/JP Wind,
US/JP EQParametric
Index TRS $63,900 Ba3
Jun-08 Swiss Re Vega Capital Ltd.
Series 2008-I Class D US/EU/JP Wind,
US/JP EQParametric
Index TRS $42,600
Jul-08 Allianz Risk Transfer (Bermuda) Limited Blue Coast Ltd. Series
2008-1 Class A US HU Industry Index TRS $70,000 BB-
Jul-08 Allianz Risk Transfer (Bermuda) Limited Blue Coast Ltd. Series
2008-1 Class B US HU Industry Index TRS $30,000 B+
Jul-08 Allianz Risk Transfer (Bermuda) Limited Blue Coast Ltd. Series
2008-1 Class C US HU Industry Index TRS $20,000 B-
Aug-08 Platinum Underwriters Bermuda Ltd.
Topiary Capital Limited
Series 2008-1 Class A US/EU W, US/
JP EQ Industry Index TRS $200,000 BB+
Feb-09 SCOR Global P&C SE Atlas V Capital Limited Series 1 US HU, EQ Industry Index TRS $50,000 B+
Feb-09 SCOR Global P&C SE Atlas V Capital Limited Series 2 US HU, EQ Industry Index TRS $100,000 B+
Feb-09 SCOR Global P&C SE Atlas V Capital Limited Series 3 US HU, EQ Industry Index TRS $50,000 B
Mar-09 Chubb Group East Lane Re III Ltd.
Series 2009-I Class A US HU Indemnity TRS $150,000 BB
Mar-09 Liberty Mutual Insurance Company Mystic Re II Ltd. Series
2009-I US HU, EQ Industry Index TRS $225,000 BB
Apr-09 Allianz Argos 14 GmbH Blue Fin Ltd. Series 2 Class A US HU, EQ Modeled Loss MTN $180,000 BB-
Apr-09 Swiss Re Successor II Ltd. Series 4 Class F US HU, EQ Parametric Index MMF $60,000
May-09 Assurant Ibis Re Ltd. Series 2009-1 Class A US HU Industry Index TRS $75,000 BB
May-09 Assurant Ibis Re Ltd. Series 2009-1 Class B US HU Industry Index TRS $75,000 BB-
Summary of Catastrophe Bonds — December 1996 through June 2011
* Equity
63
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
May-09United States Automobile Association
Residential Reinsurance
2009 Limited
Series 2009-I Class 1 US HU, EQ Indemnity MMF $70,000 BB-
May-09United States Automobile Association
Residential Reinsurance
2009 Limited
Series 2009-I Class 2 US HU, EQ Indemnity MMF $60,000 B-
May-09United States Automobile Association
Residential Reinsurance
2009 Limited
Series 2009-I Class 4 US (HU, EQ, ST,
WS, WF) Indemnity MMF $120,000 BB-
Jun-09 Munich Re Ianus Capital Ltd. EU Wind, EQ Multiple
Parametric Index (EUW); Modeled
Loss (TUQ)MTN € 50,000 B2
Jun-09 ACE American Insurance Company
Calabash Re III Ltd.
Series 2009-I Class A US HU, EQ Modeled Loss MITT MTN $86,000 BB-
Jun-09 ACE American Insurance Company
Calabash Re III Ltd.
Series 2009-I Class B US EQ Modeled Loss MITT MTN $14,000 BB+
Jul-09 North Carolina JUA/IUA Parkton Re Ltd. Series
2009-1 NC Wind Indemnity MMF $200,000 B+
Jul-09 Hannover Re Eurus II Ltd. Series 2009-1 Class A EU Wind Parametric
Index Repo € 150,000 BB
Oct-09 The Fund for Natural Disasters
MultiCat Mexico 2009 Limited
Series 2009-I Class A Mex EQ Parametric MMF $140,000 B
Oct-09 The Fund for Natural Disasters
MultiCat Mexico 2009 Limited
Series 2009-I Class B Mex, HU Pacific Parametric MMF $50,000 B
Oct-09 The Fund for Natural Disasters
MultiCat Mexico 2009 Limited
Series 2009-I Class C Mex, HU Pacific Parametric MMF $50,000 B
Oct-09 The Fund for Natural Disasters
MultiCat Mexico 2009 Limited
Series 2009-I Class D Mex, HU
Atlantic Parametric MMF $50,000 BB-
Nov-09 Flagstone Reassurance Suisse SA Montana Re Ltd. Series
2009-1 Class A US HU, EQ Industry Index Repo $75,000 B-
Nov-09 Flagstone Reassurance Suisse SA Montana Re Ltd. Series
2009-1 Class B US HU Industry Index Repo $100,000 BB-
Dec-09 Swiss Re Successor X Ltd. Series 2009-1 Class I-S1 US HU, EQ, EU
Wind MultipleIndustry Index;
Parametric Index
MMF $50,000
Dec-09 Swiss Re Successor X Ltd. Series 2009-1 Class I-U1 US HU, EQ Multiple
Industry Index; Parametric
IndexMMF $50,000 B-
Dec-09 Swiss Re Successor X Ltd. Series 2009-1 Class I-X1 US HU, EQ Multiple
Industry Index; Parametric
IndexMMF $50,000
Dec-09 SCOR Global P&C SE Atlas VI Capital Limited
Series 2009-1 Class A EU Wind, JP EQ Parametric
Index Repo € 75,000 BB-
Dec-09 The Travelers Indemnity Company
Longpoint Re II Ltd.
Series 2009-1 Class A US HU Industry Index MMF $250,000 BB+
Dec-09 The Travelers Indemnity Company
Longpoint Re II Ltd.
Series 2009-1 Class B US HU Industry Index MMF $250,000 BB+
Dec-09
Zurich American Insurance Company,
Zurich Insurance Company Ltd
Lakeside Re II Ltd. CA EQ Indemnity MMF $225,000 BB-
Dec-09 Swiss Re Redwood Capital XI Ltd.
Series 2009-1 Class A CA EQ Industry Index MMF $150,000 B1
* Equity
Summary of Catastrophe Bonds — December 1996 through June 2011
Insurance-Linked Securities 2011
64
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jan-10 Hartford Fire Insurance Company
Foundation Re III Ltd.
Series 2010-1 Class A US HU Industry Index MMF $180,000 BB+
Mar-10 Swiss Re Successor X Ltd. Series 2010-1
Class II-CN3
US HU, EU Wind Multiple
Industry Index (EUW), Modeled
Loss (USH)MMF $45,000 B-
Mar-10 Swiss Re Successor X Ltd. Series 2010-1
Class II-CL3
US HU, EU Wind Multiple
Industry Index (EUW), Modeled
Loss (USH)MMF $35,000
Mar-10 Swiss Re Successor X Ltd. Series 2010-1
Class II-BY3
US HU, EQ EU Wind, JP EQ Multiple
Industry Index (EUW), Modeled
Loss (USH), Parametric
Index (USQ), Parametric Index
(JPQ)
MMF $40,000
Apr-10 State Farm Fire and Casualty Company
Merna Reinsurance
II Ltd.US EQ Indemnity MMF $350,000 BB+
Apr-10 Assurant Ibis Re Ltd. Series 2010-1 Class A US HU Industry Index MMF $90,000 BB
Apr-10 Assurant Ibis Re Ltd. Series 2010-1 Class B US HU Industry Index MMF $60,000 B+
May-10 North Carolina JUA/IUA Johnston Re Ltd. Series
2010-1 Class A US HU Indemnity MMF $200,000 BB-
May-10 North Carolina JUA/IUA Johnston Re Ltd. Series
2010-1 Class B US HU Indemnity MMF $105,000 BB-
May-10National Union Fire
Insurance Company of Pittsburgh
Lodestone Re Ltd.
Series 2010-1 Class A US HU, EQ Industry Index MMF $175,000 BB+
May-10National Union Fire
Insurance Company of Pittsburgh
Lodestone Re Ltd.
Series 2010-1 Class B US HU, EQ Industry Index MMF $250,000 BB
May-10 Munich Re EOS Wind Limited Class A US HU Industry Index MMF $50,000 Ba3
May-10 Munich Re EOS Wind Limited Class B US HU, EU
Wind MultipleIndustry Index
(US HU); Paradex (EUWS)
MMF $30,000 Ba3
May-10 Nationwide Mutual Insurance Company
Caelus Re II Limited
Series 2010-1 Class A US HU, EQ Indemnity MMF $185,000 BB+
May-10 Allianz Argos 14 GmbH Blue Fin Ltd. Series 3 Class A US HU, EQ Modeled Loss MMF $90,000 B-
May-10 Allianz Argos 14 GmbH Blue Fin Ltd. Series 3 Class B US HU, EQ Modeled Loss MMF $60,000 BB
May-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-I Class 1 US (HU, EQ, ST,
WS, WF) Indemnity MMF $162,500 BB
May-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-I Class 2 US (HU, EQ, ST,
WS, WF) Indemnity MMF $72,500 B+
May-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-I Class 3 US (HU, EQ, ST,
WS, WF) Indemnity MMF $52,500 B-
May-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-I Class 4 US (HU, EQ, ST,
WS, WF) Indemnity MMF $117,500
Jun-10State Farm Mutual
Automobile Insurance Company
Merna Reinsurance
III Ltd
US/Canada (Wind, EQ, ST,
WS, WF)Indemnity MMF $250,000
* Equity
Summary of Catastrophe Bonds — December 1996 through June 2011
65
Aon Benfield Securities
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Jul-10
Massachusetts Property Insurance
Underwriting Association
Shore Re Ltd. Series 2010-1 Class A US HU Indemnity MMF $96,000 BB
Sep-10 Groupama S.A. Green Valley Ltd. Series 2 Class A EU Wind Parametric
Index MTN € 100,000 BB+
Oct-10 AXA Global P&C Calypso Capital Limited
Series 2010-1 Class A EU Wind Industry Index Repo € 275,000 BB
Nov-10American Family Mutual Insurance
CompanyMariah Re Ltd. Series
2010-1 US ST Industry Index MMF $100,000 B
Dec-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-II Class 1 US (HU, EQ, ST,
WS, WF) Indemnity MMF $210,000 BB
Dec-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-II Class 2 US (HU, EQ, ST,
WS, WF) Indemnity MMF $50,000
Dec-10United States Automobile Association
Residential Reinsurance 2010 Limited
Series 2010-II Class 3 US (HU, EQ, ST,
WS, WF) Indemnity MMF $40,000
Dec-10 SCOR Global P&C SE Atlas VI Capital Limited
Series 2010-1 Class A EU Wind, JP EQ Parametric
Index Repo € 75,000 B-
Dec-10 Swiss Re Vega Capital Ltd.
Series 2010-I Class C US/EU/JP Wind,
US/JP EQ Multiple MTN $63,900 Ba3
Dec-10 Swiss Re Vega Capital Ltd.
Series 2010-I Class D US/EU/JP Wind,
US/JP EQ Multiple MTN $42,600
Dec-10American Family Mutual Insurance
CompanyMariah Re Ltd. Series
2010-2 US ST Industry Index MMF $100,000
Dec-10
National Union Fire Insurance Company of Pittsburgh
Lodestone Re Ltd.
Series 2010-2
Class A-1 US HU, EQ Industry
Index MMF $125,000 BB+
Dec-10
National Union Fire Insurance Company of Pittsburgh
Lodestone Re Ltd.
Series 2010-2
Class A-2 US HU, EQ Industry
Index MMF $325,000 BB
Dec-10Flagstone
Reassurance Suisse SA
Montana Re Ltd.
Series 2010-1 Class C US HU, EQ Multiple Repo $70,000 B
Dec-10Flagstone
Reassurance Suisse SA
Montana Re Ltd.
Series 2010-1 Class D US HU, EQ Multiple Repo $80,000
Dec-10Flagstone
Reassurance Suisse SA
Montana Re Ltd.
Series 2010-1 Class E
US HU, EQ/EU Wind, JP
TY, JP EQMultiple Repo $60,000 B-
Dec-10 Swiss Re Successor X Ltd.
Series 2011-1
Class III-R3
US HU, EQ , AUS EQ Multiple
Modeled Loss (USH), Parametric
Index (USQ), Parametric
Index (AUQ)
MTN $65,000 B-
* Equity
Summary of Catastrophe Bonds — December 1996 through June 2011
Insurance-Linked Securities 2011
66
Issuance Date Beneficiary Issuer Series Class Perils Trigger
Additional Trigger Details Collateral Size ($MM) MIS S&P Fitch
Dec-10 Swiss Re Successor X Ltd.
Series 2011-1
Class III-S3
US HU, EQ , AUS EQ Multiple
Modeled Loss (USH), Parametric
Index (USQ), Parametric
Index (AUQ)
MTN $50,000 B-
Dec-10 Swiss Re Successor X Ltd.
Series 2011-1
Class III-T3
US HU, EQ , AUS EQ Multiple
Modeled Loss (USH), Parametric
Index (USQ), Parametric
Index (AUQ)
MTN $55,000
Dec-10 Groupama S.A.Green Fields
Capital Limited
Series 2011-1 Class A EU Wind Industry
Index MTN € 75,000 BB+
Feb-11Hartford Fire
Insurance Company
Foundation Re III Ltd.
Series 2011-1 Class A US HU Industry
Index MMF $135,000 BB+
Feb-11 Swiss Re Successor X Ltd.
Series 2011-2
Class IV-E3 US HU, EQ Industry
Index MTN $160,000 B
Feb-11 Swiss Re Successor X Ltd.
Series 2011-2
Class IV-AL3 US HU, EQ Industry
Index MTN $145,000
Mar-11 Chubb Group East Lane Re IV Ltd.
Series 2011-I Class A US HU, EQ,
ST, WS Indemnity MMF $225,000 BB+
Mar-11 Chubb Group East Lane Re IV Ltd.
Series 2011-I Class B US HU, EQ,
ST, WS Indemnity MMF $250,000 BB
Mar-11 Munich Re
Queen Street II Capital Limited
US HU, EU Wind
Industry Index MMF $100,000 BB-
Apr-11 Allianz Argos 14 GmbH Blue Fin Ltd. Series 4 Class B US HU, EQ Modeled
Loss MMF $40,000
May-11 North Carolina JUA/IUA
Johnston Re Ltd.
Series 2011-1 Class A US HU Indemnity MMF $70,000 BB-
May-11 North Carolina JUA/IUA
Johnston Re Ltd.
Series 2011-1 Class B US HU Indemnity MMF $131,835 BB-
May-11United States Automobile Association
Residential Reinsurance 2011 Limited
Series 2011-I Class 1
US (HU, EQ, ST, WS,
WF)Indemnity MMF $57,000 B+
May-11United States Automobile Association
Residential Reinsurance 2011 Limited
Series 2011-I Class 2
US (HU, EQ, ST, WS,
WF)Indemnity MMF $33,000 B-
May-11United States Automobile Association
Residential Reinsurance 2011 Limited
Series 2011-I Class 5
US (HU, EQ, ST, WS,
WF)Indemnity MMF $160,000 B+
Jun-11 Argo Re, Ltd.Loma
Reinsurance Ltd.
Series 2011-1 Class A
US HU, EQ, EU Wind,
JP EQ
Industry Index Repo $100,000 BB-
* Equity
Summary of Catastrophe Bonds — December 1996 through June 2011
67
Aon Benfield Securities
Appendix IIISummary of Sidecar Issuance
As of June 2011
Source: Aon Benfield Securities
Insurance-Linked Securities 2011
68
SideCar Principal Sponsor Inception Line of BusinessInitial Size
($MM)Renewal ($MM)
Top Layer Re Renaissance Re, SF December 1999 High Excess Us Property Cat 100.0
Olympus Re White Mountains Re December 2001 Property Cat, Property Risk, Retro, And Marine 500.0
DaVinci Re Renaissance Re, SF December 2001 Property Cat Reinsurance 600.0
Rockridge Re Montpelier Re June 2005 High Excess Cat Retrocessional 90.9
Blue Ocean Re Montpelier Re December 2005 Property Cat Retrocessional 300.0
Cyrus Re XL Capital December 2005 Property Cat Reinsurance And Retrocessional 525.0
Flatiron Re Arch Re December 2005 Property And Marine Reinsurance 900.0
Helicon Re White Mountains Re December 2005 Short-Tailed Property And Marine 146.0
Kaith/K5 Hannover Re December 2005 Property Cat, Property Risk, Aviation And Marine 370.0 540.0
Olympus Re II White Mountains Re January 2006 Property Cat, Property Risk, Retro And Marine 156.0
Petrel Re Validus May 2006 Marine And Of fshore Energy Reinsurance Contracts 125.0
Starbound Re Renaissance Re May 2006 Short-Tailed Property And Marine 310.5
Bay Point Re Harbor Point June 2006 US Property, Marine, Retro, And Workers’ Comp 150.0
Sirocco Re Lancashire June 2006 Marine And Of fshore Energy Insurance Contracts 75.0
Timicuan Re Renaissance Re July 2006 Reinstatement Premium Protection 70.0
Concord Re Lexington Insurance Co August 2006 US Commercial Property 730.0
Mont Fort Re Flagstone Re August 2006 Peak Zone And ILW 60.0
Cyrus Re XL Capital November 2006 Property Cat Reinsurance And Retrocessional 635.0 140.0
Panther Re Hiscox December 2006 Property Cat Reinsurance 360.0
Syncro Ltd. Lloyd’s #4242 (Chaucer) December 2006 Property Cat Reinsurance 100.0
Norton Re Brit Insurance December 2006 Property Cat Retrocessional 107.7
New Point Re Harbor Point December 2006 Property Cat Retrocessional 250.0 100.0
Triomphe Re Paris Re December 2006 Property Cat Retrocessional 185.0
Sector Re Swiss Re January 2007 Property Cat, Aviation 220.0
MaRI Ltd. ACE January 2007 Property Cat Reinsurance 400.0
Syndicate 6105 Ark Underwriting January 2007 Property Cat Reinsurance 40.0
Syndicate 6104 Hiscox January 2007 Property Cat Reinsurance 69.0
Syndicate 6103 Mapfre Ltd. January 2007 Property Cat Reinsurance 78.6
Bridge Re Swiss Re April 2007 Property Cat, Aviation 182.5
Starbound Re II Ren Re June 2007 Property Cat Reinsurance 341.5
Mont Gele Re Flagstone Re July 2007 Property Cat Reinsurance 60.0
Norton Re II Brit Insurance December 2007 Property Cat Retrocessional 118.2
Sector Re II Swiss Re April 2008 Property Cat, Aviation 150.0
Globe Re Hannover Re May 2008 Property Cat Retrocessional 133.0
Kaith/K6 Hannover Re March 2009 Property Cat, Property Risk, Aviation And Marine 180.0
Timicuan Re II Renaissance Re June 2009 Property Cat Retrocessional, Primarily Florida 60.4
Fac Pool Re Hannover Re September 2009 Worldwide Fac 60.0
Long Bay Re Catlin April 2010 Property Cat -
AlphaCat Re Validus May 2011 Property Cat Reinsurance And Retrocessional 180.0
DaVinci Re Renaissance Re June 2011 Property Cat, Specialty 100.0
Accordion Re Lancashire Re July 2011 Property Cat 200.0
New Point Re IV Harbor Point July 2011 Property Cat 200.0
Total Initial Capacity 9,619.3
Total Capacity Including Renewals 10,399.3
Summary of Sidecar Issuance
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Insurance-Linked Securities 2011
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