RMS Provides Risk Analysis for American Re Cat Securitization

Menlo Park, CA-based Risk Management Solutions (RMS) says it provided the risk analysis and will serve as Index Calculation Agent to support a $182 million securitization of U.S. earthquake and hurricane risk by special-purpose Bermuda company, Gold Eagle Capital Limited.

The transaction transfers to investors the risk associated with catastrophic East and Gulf Coast hurricanes and California and New Madrid region earthquakes, and provides American Re Corporation's consolidated group with potential payments linked to such catastrophes.

The Modeled Index Linked Securities (ModILS) were offered to investors in two debt tranches – Class A and Class B notes – and a smaller tranche of equity certificates by Gold Eagle Capital Limited, which in turn entered into a swap agreement with American Re Capital Markets, Inc.

The transaction is based on the RMS CAT Index and is believed to be the first ever use of a modeled loss index as the trigger for a catastrophe risk securitization. Following the occurrence of a qualifying earthquake or hurricane, RMS will calculate an RMS CAT Index value, which will be finalized 60 days after the event.

This value will represent estimated industry losses and will serve as the determinant of how much loss, if any, occurs to the Securities. RMS will compute the RMS CAT Index value by simulating losses to the industry – as defined by RMS' proprietary database of U.S. insurance industry exposures – using RMS' catastrophe models and event parameters acquired from organizations such as the U.S. Geological Survey and the National Hurricane Center.

The levels of index values that will trigger a loss to investors and payments to American Re are defined uniquely to each covered region and peril.

Hemant Shah, president of RMS, said, "We established the RMS CAT Index with a vision that it would serve as a valuable tool for supporting continuing innovation in risk transfer, particularly into the capital markets. American Re is one of RMS' most sophisticated clients, and we are pleased that they chose to use the RMS CAT Index in structuring this very innovative transaction."

"The Gold Eagle transaction serves as an integral element of American Re's overall catastrophe risk management strategy," noted Charles Kerner, managing director of American Re Securities Corporation. "We believe that the modeled index approach has significant advantages for both investors and issuers, and we intend to use similar approaches to provide innovative risk transfer solutions to our clients in the future."

American Re Securities Corporation acted as lead manager for the transaction, with Merrill Lynch & Co. and Salomon Smith Barney also serving as placement agents. Moody's Investors Service and Fitch IBCA both reviewed the transaction and assigned ratings of Baa3 and BBB- to the Class A Notes and Ba2 and BB to the Class B Notes.