First parametric earthquake catastrophe bond to hedge mortgage risk caused by earthquakes for Bayview
Zurich, Switzerland (Jan. 13, 2020) – Swiss Re Capital Markets successfully closed the USD 225 million Series 2020-1 Principal At-Risk Variable Rate Notes transaction issued by Sierra Ltd. on behalf of Bayview’s MSR Opportunity Fund (“Bayview”). This transaction is the first catastrophe bond issued under Rule 144A with a parametric trigger that is designed to cover mortgage default risk caused by earthquakes in California, Oregon, Washington and South Carolina. Swiss Re Capital Markets acted as the sole structuring agent and joint-bookrunner.
The pioneering transaction had two classes of principal at-risk variable rate notes issued by Sierra Ltd., a special purpose vehicle incorporated in Bermuda (the “Issuer”). As part of the transaction structure, Bayview has entered into a derivative agreement with Sierra Ltd, which provides protection on a parametric per occurrence basis against earthquakes. The notes have a three-year risk period and provide protection using the data provided by the U.S. Geological Survey.
Jean-Louis Monnier, Head of Retro & ILS Structuring of Swiss Re’s Alternative Capital Partners says: “We’re proud to have worked with Bayview in structuring and placing the first parametric catastrophe bond designed to protect against mortgage default caused by earthquakes. Parametric solutions help speed up the claims process, while offering greater transparency to investors. This landmark transaction underscores the potential of the capital markets in helping to reduce the hedging gap and build resilience against uninsured risks prevalent in the U.S. mortgage markets.”
The Sierra Ltd. notes were sold pursuant to Rule 144A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws; they may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and applicable state securities laws.
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In the U.S., securities products and services are offered through Swiss Re Capital Markets Corporation, a registered broker dealer and a member of FINRA and SIPC. In the European Union, securities products and services are offered through Swiss Re Capital Markets Limited. Swiss Re Capital Markets Limited is authorized and regulated in the U.K. by the Financial Conduct Authority, and benefits from a passport into certain Member States of the European Union pursuant to the Markets in Financial Instruments Directive 2004/39/EC. Swiss Re Capital Markets Corporation and Swiss Re Capital Markets Limited, together “Swiss Re Capital Markets”, are wholly owned subsidiaries of Swiss Re Ltd.
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The Swiss Re Group is one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, working to make the world more resilient. It anticipates and manages risk – from natural catastrophes to climate change, from ageing populations to cyber crime. The aim of the Swiss Re Group is to enable society to thrive and progress, creating new opportunities and solutions for its clients. Headquartered in Zurich, Switzerland, where it was founded in 1863, the Swiss Re Group operates through a network of around 80 offices globally. It is organised into three Business Units, each with a distinct strategy and set of objectives contributing to the Group’s overall mission. For more information, please visit www.swissre.com.
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SOURCE: Swiss ReTags: earthquake, industry first, Natural Catastrophes, parametric insurance, Swiss Re