28 April 2015 Alternative Risk Transfer

Fitch rates Long Point Re III

Fitch Ratings expects to issue the latest catastrophe bond from Travelers with a 'BB-sf' rating and stable outlook.

Long Point Re III provides three years of indemnity, per occurrence coverage to various insurance subsidiaries or affiliates of the Travelers Companies.

Issued as a single tranche of Class A notes, the bond will cover tropical cyclone, earthquake, severe thunderstorms and winter storm events within the northeast US. This includes Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.

“The rating is based on the evaluation of the natural catastrophe risk, the counterparty risk of Travelers, the credit risk of the permitted investments and the structural integrity of the transaction. The natural catastrophe risk represents the lowest rating amongst the three risk segments and currently drives the final rating of the notes,” said Fitch.

The 2015-1 notes are exposed to a principal loss if a covered event exceeds $2 billion in covered losses, and exhausted if the loss amount exceeds $2.5 billion.

AIR Worldwide will act as the reset agent, with reset dates occurring in May 2016 and May 2017. During reset, Travelers can lower the expected loss to any level but cannot increase the expected loss above the maximum expected loss of 1.6 percent.

“This rating is sensitive to the occurrence of a qualifying natural catastrophe event(s), Travelers' election to reset the note's expected loss, changes in the data quality, the counterparty rating of Travelers and the rating or performance on the assets held in the collateral account,” said Fitch.

According to the rating agency, the one-year attachment probability for the 2015-1 notes was 1.3 percent, based on fifty thousand simulations.

This outcome led to the suggested ratings of 'BB-' using Fitch's insurance-linked securities calibration matrix with a one year time to risk maturity assumption. A sensitivity test performed by AIR reflecting the impact of elevated sea surface temperatures produced a modelled trigger probability of 1.35 percent which would not change the implied rating.

If a qualifying covered event occurs that results in a loss of principal, Fitch will downgrade the note to reflect an effective default and issue a recovery rating.

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk