RMS Parametric Model for Japan Typhoon Risk Securitization

Risk Management Solutions has designed the trigger mechanism and performed the risk analysis for a parametric securitization of typhoon risk in Japan. Issued by Akibare Ltd., a Cayman Islands special purpose vehicle (SPV), the securities provide $120 million of five-year, collateralized cover for Mitsui Sumitomo Insurance Co., Ltd (See IJ web site May 18).

“We believe that this transaction illustrates how parametric deals can benefit both sponsors and investors,” indicated Peter Nakada, managing director of RMS Consulting. “Because the deal is based strictly on wind speeds, it is transparent and simple for investors to understand, while a dropdown feature provides Mitsui Sumitomo with the dynamics they wanted.”

He went on to explain that RMS is exploring the possibility of standardizing “parametric indices like this, to further increase efficiency and liquidity in the market.”

Akibare Ltd is a parametric securitization of Japan typhoon risk that uses 10-minute mean wind speeds, observed over 900 stations of the Automated Meteorological Data Acquisition System (AMeDAS) network in Japan to calculate peak gust wind speeds. The notes have a rating of BB+ for the Class A tranche and BB+ for the Class B tranche.