$85m bond covers Central American earthquakes; boasts unique index triggers

Swiss Re has successfully structured and placed $85m of securities covering windstorm events in the United States as well as earthquakes in California and Central America.

The bond is the first ever linked to Central American earthquakes. The initial offering of notes by GlobeCat Ltd closed on 21 December 2007.

The risk modelling company Eqecat was used as the calculation agent as well as for the initial risk analysis.

As part of an ongoing program, Swiss Re’s Capital Markets structured and placed the securitisation and acted as the sole book runner for the initial $85m offering.

The first two tranches of the issuance cover losses due to catastrophic hurricanes and earthquakes in the United States. The third tranche covers the non-peak perils of Guatemala and El Salvador earthquakes.

The trigger is the first of its kind in that the index is based on the population exposed to certain levels of ground-shaking intensity as measured by the Modified Mercalli Intensity scale.

The goal of the GlobeCat securitisation is to create a platform and a model by which charitable foundations, governmental relief organisations and corporations can leverage donations or governmental/international funding to the benefit of developing nations affected by natural disasters.

Such a programme will help these organisations in becoming more pro-active in planning and anticipating relief needs in areas of the world affected by severe catastrophes. In case of a triggering event, the funds will be quickly available for relief efforts rather than being raised after the event.

The GlobeCat securitisation has shown that this concept is viable and that donation to coverage leverage can be as high as 45 times ($1m of donations can be used for $45m in relief). Other triggers are being developed for a wide variety of disasters.