Standard & Poor’s Ratings Services announced Tuesday that it rated the first storm surge catastrophe bond—MetroCat Re Ltd.—a $200 million issuance sponsored by First Mutual Transportation Assurance Co., a captive insurer for the New York Metropolitan Transportation Authority.
S&P said it has assigned a rating of “BB-(sf)” to the Series 2013-1 class A notes issued by MetroCat Re Ltd. Explaining that the notes provide parametric coverage for storm surge, S&P said this is the first time it has rated a transaction using only Risk Management Solutions Inc.’s storm-surge model, and also the first time for rating a transaction that has storm surge as the sole metric for determining if a triggering event has occurred.
S&P said the class notes provide reinsurance to FMTAC for named storms that generate an event index value that equals or exceeds 8.5 feet for Area A (tidal gauges located in The Battery, Sandy Hook, and Rockaway Inlet) or 15.5 feet for Area B (tidal gauges in East Creek and Kings Point).
A loss payment on the notes is based on the event index value meeting or exceeding a trigger level for the applicable area. If a trigger event occurs, the loss payment from MetroCat to FMTAC will be 100 percent of the outstanding principal amount.
S&P said its rating is based on the lower of the rating on the catastrophe risk (“BB-“) and the rating on the assets in the collateral accounts (“AAAm”).
S&P does not have a rating on the ceding insurer, First Mutual Transportation Assurance Co., but noted that credit exposure to FMTAC will be mitigated because FMTAC will prepay the initial quarterly interest spread at closing and will prepay each subsequent quarterly interest spread 50 days before each payment date.
Separately, S&P announced that it also assigned at “BB-(sf)” preliminary rating to the Series 2013-1 Class A notes to be issued by Northshore Re Ltd., sponsored by AXIS Capital Holdings.
The Northshore Re notes cover losses on an aggregate basis in most of the United States for both hurricanes and earthquakes identified as catastrophes by the Property Claim Services division of Insurance Services Office Inc.
S&P said these notes cover a portion of losses between the attachment point of $1 billion and the exhaustion point of $1.2 billion over the franchise deductible of $50 million, and added that the loss figures for the reinsurance agreement will be based on the PCS estimates of industry loss scaled by factors that depend on the state and are roughly proportional to AXIS’s market share by state.
The S&P rating is based on the lowest of the following: the rating on the catastrophe risk (“BB-“), the rating on the assets in the collateral account (“AAAm”), and the rating on the ceding insurers and reinsurers, which are operating companies within the AXIS group (“A+”).
Source: Standard & Poor’s