CEA's $100 Million Earthquake Cover Makes Innovative Use of Capital Markets.Business Editors NEW YORK--(BUSINESS WIRE)--Feb. 28, 2001 The California Earthquake Authority Established in September 1996 by the California Legislature, the California Earthquake Authority is a privately funded, publicly managed organization that sells California earthquake insurance policies through participating insurance companies. (CEA CEA carcinoembryonic antigen. CEA abbr. carcinoembryonic antigen CEA (Carcinoembryonic antigen) ) and two leading financial service companies have used a combination of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. and investment capital to arrange $100 million that will be available to CEA policyholders in the event of one or more major earthquakes over the next 23 months. As part of the transaction, the CEA signed a $100 million reinsurance contract with Swiss Reinsurance Company. Subsequently, Swiss Re Capital Markets Corporation (SRCM SRCM Shri Ram Chandra Mission (India) SRCM Stochastic Radio Channel Model SRCM Società Romana Costruzioni Meccaniche (Italian, training hand grenades) ) and Goldman, Sachs & Co. co-led a private offering and jointly placed $97 million of floating rate notes and $3 million of preference shares that, in effect, will replenish Swiss Re's capital should such an earthquake occur. "Although the CEA routinely uses reinsurance contracts, use of the capital markets in this instance effectively lowers the CEA's cost of capital while diversifying the financial risk to Swiss Re and institutional investors," said Markus Schmutz, vice president of Swiss Re Capital Markets. "This approach can provide a useful model to insurers and other companies." The floating rate notes were rated BB+ by Standard & Poor's and Ba2 by Moody's. The issuer, Western Capital Limited, is a Bermuda special purpose company whose common shares are held in trust. Payout of the floating-rate notes is linked to an index of California earthquakes as determined by the Property Claim Services (PCS (1) (Personal Communications Services) Refers to wireless services that emerged after the U.S. government auctioned commercial licenses in 1994 and 1995. This radio spectrum in the 1. ). Earthquake risk analysis was provided by Oakland, CA-based EQECAT Inc. A unit of Swiss Re New Markets, SRCM structured and placed the first California earthquake bond and the first insurance industry loss indexed bond (SR Earthquake Fund) in 1997. SRCM is the leading reinsurance-affiliated broker-dealer in the insurance linked securities industry. Swiss Re New Markets combines (re)insurance-based innovations with other elements of corporate finance to help our clients enhance capital efficiency, stabilize earnings and add shareholder value. It is a division of Swiss Reinsurance Company, a leading reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. , and the world's largest life reinsurer. With more than 9000 employees, Swiss Re is represented at more than 70 offices in over 30 countries worldwide. Gross premiums in 1999 amounted to CHF CHF In currencies, this is the abbreviation for the Swiss Franc. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 22.4 billion, and the ordinary result after tax to CHF 2.8 billion. Swiss Re is rated "Aaa" by Moody's and "AAA" by Standard & Poor's. |
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