Catastrophe Swap

Brit Insurance Holdings PLC the UK-domiciled international general insurer and reinsurer announces that its principal subsidiary Brit Insurance Limited has entered a three-year catastrophe swap contract with Fremantle Limited.
June 22, 2007


Brit Insurance Holdings PLC ("Brit Insurance") the UK-domiciled international general insurer and reinsurer announces that its principal subsidiary Brit Insurance Limited ("BIL") has entered a three-year catastrophe swap contract with Fremantle Limited ("Fremantle"), a Cayman Islands exempted company, that would pay BIL up to US$200 million in the event of four to nine qualifying natural catastrophes ("events").

Fremantle will pay BIL US$40 million for each of the 4th and 5th events and US$30 million for each of the 6th to 9th events. The first three events are excluded.

Fremantle was formed solely for issuing loan notes underpinning a catastrophe swap programme. In its first issue Fremantle has raised US$200 million by the issue of three-year Principal At-Risk Variable Rate Notes, maturing June 2010 and divided into Classes A, B and C. The proceeds from the notes secure Fremantle's obligations under the catastrophe swap contract with BIL.

Fitch Ratings and Moody's Investor Service assigned ratings to the notes issued by Fremantle as shown below.

Class - A
Amount (US$ m) - 60
Fitch - AAA
Moody's - Aa1
Annual spread above LIBOR (bps) - 90

Class - B
Amount (US$ m) - 60
Fitch - BBB+
Moody's - A3
Annual spread above LIBOR (bps) - 200

Class - C
Amount (US$ m) - 80
Fitch - BB-
Moody's - Ba2
Annual spread above LIBOR (bps) - 700

BIL may, at its option terminate the swap after twelve, fifteen or eighteen months for a total additional one off payment of US$5 million.

Dane Douetil, Group Chief Executive of Brit Insurance, said:
"As stated in our 2006 report and accounts, we believe that the market for Insurance Linked Securities is now beginning to mature; our involvement with Fremantle is an excellent example. This innovation increases the range of options at our disposal in our asset liability management toolkit and reduces our dependence on traditional reinsurance solutions.
"Although this is a relatively small part of our overall catastrophe hedging programme, it widens our access to the capital markets while offering structural features which we consider to be attractive compared with traditional products. In particular this gives us a multi year, multi event hedge, which is cash collateralised and provides enhanced capital efficiency for Brit Insurance.

"I would also like to add that we are delighted with the positive response of investors as evidenced by the over subscription for the Fremantle notes."

The programme and this first issue have been brought to the securities market by ABN AMRO London. It was developed in conjunction with MMC Securities Ltd., an affiliate of Guy Carpenter & Company Inc. and Risk Management Solutions Inc. who also act as the Event Calculation Agent.

Enquiries
Brit Insurance Holdings PLC, 020 7984 8500
Dane Douetil, Group Chief Executive
Carne Curgenven, Communications Director

Haggie Financial, 020 7417 8989
Peter Rigby/Juliet Tilley

-Ends-

Notes to Editors
  • Brit Insurance is a major UK-domiciled general insurance and reinsurance group writing UK and international business. Its underwriting operations comprise, principally, three customer-facing centres: UK, London Market and Reinsurance. All three have access to two regulatory vehicles through which Brit Insurance underwrites: UK insurance company, Brit Insurance Limited and Lloyd's syndicate 2987 which is managed by Brit Syndicates Limited. Brit Insurance has UK underwriting offices in London, Reading, Birmingham, Bristol, Glasgow, Leeds, Darlington, Ilford and Manchester.
  • The qualifying events and attachment points for the first series of Fremantle Notes are:

Attachment (US$ billion)
California Earthquake - 10.00+
New Madrid Earthquake - 20.00+
US Hurricane (Florida) - 15.00+
US Hurricane (Gulf states & East Coast states) - 12.00+
US Hurricane (Bypassing) - 12.00+
EU Windstorm - * 7.00
UK Windstorm - * 4.00
Japan Typhoon - * 12.00
Japan Earthquake - * 24.25

+ These events are based on values reported by Property Claims Services

* Indicative only: non-US events are defined under parametric criteria such as wind speeds or seismic activity.
 
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