SCOR issue CoCo deal to increase its nat cat cover

By Sarah Mortimer

WASHINGTON, Dec 20 (BestGrowthStock) – French reinsurer SCOR
(SCOR.PA: ) has brought additional natural catastrophe cover from
the capital markets through a 150 million euro contingent
capital transaction with UBS.

The three-year financial solution will diversify Scor’s
sources of reinsurance cover and acts as a new layer which is
uncorrelated with their cat bonds, the French reinsurer said.

Contingent capital solutions are debt instruments that
convert into equity or take a mandatory principal writedown if
an issuing insurer breaches a set trigger, most likely falling
below a capital adequacy ratio.

They are often referred to as ‘contingent convertibles’ or
‘CoCo’ bonds by the market.

Under new Swiss capital requirements big banks UBS (UBSN.VX: )
and Credit Suisse (CSGN.VX: ) will have to issue CoCos – but some
bankers have voiced doubts about the feasibility of creating a
market for these instruments.

The issuance of the shares will be triggered when SCOR has
experienced total aggregated losses from natural catastrophes
above certain thresholds.

“This innovative contingent capital solution will allow the
Company to further diversify its means of protection and
counterparties, offering a cost effective alternative to
traditional retro and insurance-linked securities (ILS) and
improving the Group’s capital shield strategy,” SCOR said in a
statement.

Reinsurers have to hold vast amounts of capital to cover the
risk of events that might happen only once every 200 years,
which can be expensive.

SCOR issued 9,521,424 warrants to UBS, which will be
triggered when SCOR has experienced total aggregated losses from
natural catastrophes above certain thresholds between January 1,
2011 and December 31, 2013.

Natural catastrophe events covered under the transaction
include earthquake, hurricanes and storms, flooding, snow
events, meteor impacts and mudslides.

SCOR’s contingent 150 million euro equity line will be
available in two separate tranches of 75 million euros each.

In the event that SCOR’s shares falls below 10 euros, the
issuance of 75 million euros, including the issuance premium
will be automatically triggered in order to ensure the
availability of this financial cover should a natural
catastrophe-type event occur during the remainder of the risk
coverage period, SCOR said in a statement.

Swiss Re’s (RUKN.VX: ) Chief Financial Officer told Reuters
the world’s second biggest reinsurer would be buying or issuing
contingent convertible (CoCo) bonds once a market has developed
for the novel financial instruments. [IDn:LDE6A31GG]

CoCos could become attractive as a form of capital relief
also to insurers as new European capital requirements for
insurers, known as Solvency II and coming into effect in 2013,
become clearer, Swiss Re said.

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SCOR issue CoCo deal to increase its nat cat cover