JERSEY CITY, NJ, April 29, 2002 — Redwood Capital I Ltd. has licensed insured-loss information from Insurance Services Office, Inc.'s (ISO) Property Claim Services (PCS) unit to be used as a "trigger" for payments on a one-year $165-million catastrophe securities offering that securitizes California earthquake risks.
The catastrophe securitization allows Redwood Capital I Ltd. to enter into a financial contract with Lehman Re Ltd. to provide it with earthquake risk protection.
Risk securitization involves offering catastrophe securities as a financial instrument to investors who accept the risk of potential loss of their investments in the event of a catastrophe in return for a fixed stream of payments.
According to the license agreement, payments by noteholders and preferred shareholders due to California earthquakes will be triggered if PCS identifies an earthquake or multiple earthquakes as catastrophes and develops a cumulative total that equals or exceeds $22.5 billion in estimated insured property losses. The amount to be paid is determined by the PCS estimate of total insured property losses, which includes fire losses following an earthquake.
"Lehman Re's choice bolsters PCS's reputation as the U.S. insurance industry's authoritative, one-stop source for catastrophe information services, including identifying and estimating insured property damage," said Richard P. Boehning, ISO's senior vice president.
Lehman Brothers, Inc. and Swiss Re Capital Markets Corporation acted as initial purchasers of the notes and preference shares issued by Redwood Capital I Ltd. The instruments, sold to qualified institutional investors, can be redeemed on January 1, 2003. If no earthquakes occur during the instruments' risk period, investors will receive returns on their investment and get quarterly coupon payments. Investors could lose all or a portion of their investment and interest or dividends, as the case may be, on the securities in the event of earthquakes.
ISO's Property Claim Services unit is recognized around the world as the property/casualty industry's authority on catastrophe information services. For more than 50 years, PCS has been responsible for identifying and estimating insured property damage resulting from catastrophes affecting the United States. The identification of events as catastrophes by PCS has provided primary insurance companies and reinsurance companies worldwide with a way to segregate property losses that may be subject to reinsurance coverage.
PCS's insured property loss estimates have traditionally provided claims departments with benchmarks to validate companies' preliminary reserve estimates and the physical resources needed at catastrophe sites for claims handling.
ISO is a leading source of information, products and services related to property and liability risk. For a broad spectrum of commercial and personal lines of insurance, ISO provides statistical, actuarial, underwriting and claims information and analysis; consulting and technical services; policy language; information about specific locations; fraud-identification tools; and data processing. In the United States and around the world, ISO serves insurers, reinsurers, agents, brokers, self-insureds, risk managers, and insurance regulators and other government agencies.