Hannover Re plans 75 mln euro catastrophe bond-investors
* Plans catastrophe bond to cover European storm risks
* Unique repo-based collateral mechanism
* Second bond of 2009 to reference non-U.S. peril
LONDON, July 13 (Reuters) - Hannover Re (HNRGn.DE) is marketing a 75 million euro catastrophe bond that will cover the world's fourth-largest reinsurer against extreme losses from European windstorms, investors said on Monday.
The transaction, the second to be launched via Hannover Re's Eurus special purpose vehicle, will employ a novel repo-based collateral mechanism, the brainchild of investment bank BNP Paribas, which is structuring the deal with Aon Benfield.
Collateral security has been a key concern for catastrophe bond investors and sponsors since last year's collapse of Lehman Brothers exposed a structural flaw making the securities more vulnerable to credit risk than previously thought. [ID:nLQ030447]
"We intend to renew Eurus," said a Hannover Re spokeswoman, referring to the reinsurer's catastrophe bond of July 2006, which matured recently. She declined to give further details.
That deal, Hannover Re's first tradeable catastrophe bond, used a parametric trigger based on wind speeds, meaning it is not tied to the reinsurer's actual losses. The new transaction is expected to carry a similar trigger.
The $150 million 2006 bond, rated BB by credit rating agency Standard & Poor's, gave Hannover Re three-year coverage against losses arising from severe windstorms in Belgium, Denmark, France, Germany, Ireland, Netherlands and the United Kingdom.
Investors said the new Eurus II transaction is expected to pay a coupon of 6.75 percent to 7.25 percent over Libor, substantially less than this year's nine previous cat bonds, nearly all of which have been based on riskier U.S. perils.
AIR Worldwide will be risk modeller for the transaction, which will carry an expected loss of about 1.6 percent.
The bond is expected to close at the end of July.
COLLATERAL Continued...
