“Because the two companies are geographically diverse, by aggregating their risk we were able to come up with three classes of notes all offering different risk and return profits,” says Richard Pennay, a senior vice president of Swiss Re. “By doing that, we were able to attract a broader investor base.”

The retrocession transaction involved three tranches, combining $100 million of Class A notes rated “Baa1” by Moody's, $50 million “Ba3” rated Class B notes, and $50 million of riskier, unrated Class C notes.

Catastrophe modeler AIR Worldwide provided risk analysis for the notes.

Having helped spearhead the innovative bond, Pennay says that aggregating the risks allows the companies to halve their startup costs, and although it enhanced the cost of coverage for both parties, the bond did not increase potential loss for investors.

“It's a big step forward in providing smaller insurance companies throughout the U.S. access to catastrophe bonds,” says Pennay.

“What we are seeking to do is reinsure companies for periods of high [loss] frequency and sustain losses from natural catastrophes similar to the types of events that took place in 2011,” that include the series of severe, destructive thunderstorms and Hurricane Irene striking the East coast,” says Pennay.

Earlier this year, Munich Re offered a catastrophe bond worth $75 million through Bermuda's Queen Street V Re Ltd. for hurricane and wind exposure in the United States and Europe. This bond was rated “B-plus” by Standard & Poor's.