AIR Worldwide Corporation (AIR) announced it has performed the risk modeling and analysis in support of a private placement by Helix 04 Limited, a Bermuda special purpose exempted company.
The five year, $100 million transaction provides catastrophe cover to Converium Ltd. for potential losses from European windstorm, U.S. earthquake, U.S. and Caribbean hurricane and Japanese earthquake. Aon Capital Markets underwrote the transaction and placed the notes. Helix follows on from but is broader than Trinom, a catastrophe bond launched in 2001 that was also modeled by AIR.
By means of a counterparty contract the transaction provides Converium Ltd.’s Bermuda branch with protection against the occurrence of second and subsequent events in four peril regions. A significant amount of these exposures are in Europe, a region subject to severe winter windstorms, more technically referred to as extratropical cyclones.
Helix’s European windstorm risk was analyzed using AIR’s European Extratropical Cyclone model. The model incorporates the latest advances in AIR’s Numerical Weather Prediction (NWP) capabilities, a forecasting methodology used by meteorological agencies around the world.
“AIR’s NWP-based model operates at the highest degree of resolution possible in analyzing windstorm risk for European exposures. NWP constructs a more realistic picture of European windstorm evolution than statistical models, and more accurately depicts the time-dependent, three-dimensional structure of the winds associated with these storms,” said S. Ming Lee, senior vice president at AIR Worldwide. “The model’s combination of NWP and country-specific damage functions provides increased accuracy in modeled losses.”
Trinom and Helix are the first risk-linked securities to be modeled using NWP, which incorporates comprehensive environmental physics and sophisticated computational techniques to simulate a full range of atmospheric phenomena. AIR’s implementation of NWP captures multiple high pressure ridges, low pressure troughs, fronts, and strong jet stream winds that interact to produce the most damaging winds within European windstorms.
AIR’s engineering team combined onsite analysis with loss data from actual storms to develop the damage estimation component of the AIR European Extratropical Cyclone model. Variations in historical storm experience have prompted different construction techniques and building practices across the region. AIR engineers have taken these variations into account, developing separate damage functions for each modeled country and, where appropriate, for different regions within countries.
Helix marks the first time AIR’s Japan earthquake and Caribbean hurricane models have been used to assess risk for catastrophe bonds. Other models used in the analysis include AIR’s U.S. hurricane and earthquake models. Analyses were conducted using AIR’s CLASIC/2 and CATRADER software applications.
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