Isaac puts investors in Combine Re cat bond at risk -Moody's

LONDON, Sept 12 (Reuters) - Devastating storms that hit parts of the United States this summer have put investors in Swiss Re's catastrophe Combine Re Ltd bond at risk of losing their money, credit rating agency Moody's says in a report.

Hurricane Isaac and a series of severe tornadoes and windstorms that struck the south central United States have eroded some of the reinsurance protection offered by the catastrophe bond issued by Combine Re Ltd.

The bond was launched to provide Swiss Re with reinsurance protection for two deals it has with two clients.

The structure of the cat bond means that it has not triggered a payout, but Hurricane Isaac has left investors "more vulnerable to future losses", Moody's said on Tuesday.

Swiss Re issued Combine Re Ltd in March. It sold the $200 million cat bond notes to capital market investors to protect Country Mutual Insurance Company and the North Carolina Farm Bureau's mutual insurance arm from severe U.S. storms and earthquakes.

Known as an aggregate bond, Combine Re has an 'attachment point', which can only be triggered if insurance losses from one single event or a number of accumulating losses from U.S. hurricane, earthquakes, severe thunderstorm and windstorms, hit $300 million.

The attachment level for part of the bond covering losses of Country Mutual Insurance Company has already fallen to $189.7 million from $300 million following a series of severe thunderstorm events in New Mexico, Texas, Wyoming and Colorado this summer, which caused $2 billion in losses according to Aon Benfield.

As a result, Moody's downgraded its rating on the Class B tranche of Combine Re Ltd to B1 from Ba3 in August.

Insurers and reinsurers use catastrophe bonds to transfer to capital market investors major risks on their books, such as for storms and earthquakes, freeing up capital to underwrite new insurance business.

Hurricane Isaac has caused anywhere from $700 million to $2 billion in insured onshore losses after striking the U.S. Gulf Coast last month, according to disaster modeler AIR Worldwide said, while rival firm Eqecat pegged losses at $500 million to $1.5 billion.

The bond is due to reset next March, and unless any further insured losses impact the Combine Re, the attachment point would return to $300 million.

Five other cat bonds with exposure to hurricane Isaac did not incur any losses, said Moody's. Bondholders for GlobeCat, EOS Wind, Vega Capital Series 2010-1, Successor X Series 2012-1 and Mythen Re all remain unscathed.