Insurer taps capital markets for $575m protection

AIG non-life subsidiary Chartis has obtained $575m of natural catastrophe reinsurance through a catastrophe bond transaction.

The cat bond is more than double its original size: Chartis had initially sought just $275m protection from the bond.

The transaction provides the AIG-owned insurer three-year protection against US hurricanes and earthquakes.

The bonds were issued by a Bermuda-based special-purpose vehicle called Compass Re, which in turn used the proceeds from the issuance to cover Chartis.

Compass Re issued three tranches of bonds: $75m-worth of class 1 notes, $250m-worth of class 2 notes and $250m of class 3 notes.

The Compass Re deal provides Chartis with fully-collateralised coverage on both a per-occurrence basis (through the class 1 notes) and a subsequent event aggregate basis (through the class 2 and 3 notes).

“We are pleased to be able to again obtain reinsurance supported by capital markets instruments as a mechanism to efficiently supplement and diversify Chartis’ risk management framework,” said Chartis chief executive Peter Hancock in a statement.

The Compass Re transaction folllows two cat bond deals Chartis completed with another special purpose vehicle, Lodestone Re, in 2010. The two Lodestone transactions provided the insurer with a total of $875m of cover against US hurricanes and earthquakes.

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