RMS Reviews Multi-Peril Risk Model for Securitization

Risk Management Solutions has performed a detailed review of the risk analysis processes for a multi-peril indemnity deal. “The transaction provides cover in two tranches against losses from U.S. windstorm and earthquake, Japanese typhoon and earthquake and European windstorm, as well as protection against annual aggregate worldwide peril losses,” said the bulletin.

The notes were issued by Valais Re Ltd., a Cayman Islands special purpose vehicle (SPV). They provide $104 million of three-year, collateralized cover for Flagstone Reinsurance Ltd. and Flagstone Réassurance Suisse SA.

“Flagstone’s underwriting and modeling processes use a wide set of the RMS models, accompanied by an extremely high proportion of detailed data to best analyze their exposures,” the announcement noted. RMS said it has “concluded that the methodology and assumptions employed would provide a reasonable and prudent representation of the underlying risks inherent in the transaction.”

RMS Managing Director Peter Nakada explained: “While a third party could remodel a smaller indemnity transaction, it would be impractical for a modeling firm to reanalyze a portfolio with hundreds of cedants, particularly given the typical time constraints on cat bond deals. This transaction demonstrates the value that can be added by assessing a reinsurer’s own modeling, and we are pleased to continue reviewing these deals as the market for them evolves.”

Source: Risk Management Solutions – www.rms.com