Fitch Affirms Cranberry Re Limited Catastrophe Notes at 'Bsf'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed at 'Bsf' the rating for the Principal At-Risk Variable Rate Notes issued by Cranberry Re Limited, a special purpose insurer vehicle in Bermuda as follows:

--$300,000,000 Principal At-Risk Variable Rate Notes; scheduled maturity July 6, 2018.

The Rating Outlook is Stable.

This affirmation is based on Fitch's annual surveillance review of the notes and includes an updated evaluation of the natural catastrophe risk, counterparty exposure, collateral assets and structural performance

KEY RATING DRIVERS

The notes are exposed to insured property losses caused by 'named storms', 'severe thunderstorms' and 'winter storms' on an annual aggregate basis using an indemnity trigger, from Subject Business written by the Massachusetts Property Insurance Underwriting Association (MPIUA, also known as the MA FAIR Plan). To date, there have been no reported Covered Events exceeding the Attachment Level of $300 million in the first Annual Risk Period of the transaction that extends from July 1, 2015 through June 30, 2016.

On Feb. 1, 2016, AIR Worldwide (AIR), acting as the Reset Agent, completed the Reset Report that indicated an annual attachment probability of 3.152% for the second Annual Risk Period, July 1, 2016 through June 30, 2017. This corresponds to an implied rating of 'B' per the calibration table listed in Fitch's "Insurance-Linked Securities Methodology." The updated attachment probability reflects updated property exposures within the Subject Business in the Covered Area that have been run through the escrowed AIR model. This is a small increase over the initial attachment probability of 3.081%.

The Updated Attachment Level and Updated Exhaustion Level remain unchanged from the prior levels at $300 million and $1.4 billion, respectively.

Per a specified formula in the Indenture (Risk Spread Calculation), the Updated Risk Interest Spread will be reset to 3.86% effective July 1, 2016. This is a slight increase from the initial risk spread (3.80%) reflecting the increase in the Updated Modeled Expected Loss of 1.407% versus the initial expected loss of 1.377%.

Hannover Rueck SE, a reinsurance company that acts as a transformer, sits between MPIUA and Cranberry Re. Hannover's Fitch Issuer Default Rating (IDR) was downgraded to 'A+' with a Stable Outlook on July 21, 2015. Hannover had an IDR of 'AA-' on the closing date of the notes. This downgrade did not affect the rating of the Cranberry Re Note as Fitch rates to the weakest link which is currently the implied rating of the catastrophe event.

The collateral asset, the BlackRock Treasury Trust, meets Fitch's criteria requirement for a highly-rated U.S. money market fund.

Fitch believes the notes and indirect counterparties are performing as required. There have been no reported early redemption notices or events of default, and all agents remain in place.

Additional information regarding the note can be found in the prior press release dated April 30, 2015 and available at www.fitchratings.com.

RATING SENSITIVITIES

This rating is sensitive to the occurrence of a qualifying event(s), MPIUA's election to reset the note's attachment level, changes in the data quality or purpose of MPIUA, the counterparty rating of Hannover Rueck SE and the rating on the assets held in the collateral account.

If qualifying covered events occur that cause annual aggregate losses to exceed the Updated Attachment Level ($300 million), Fitch will downgrade the notes reflecting an effective default and issue a Recovery Rating.

In the event of a reset election by MPIUA for the third and final risk period, the rating would not change if the attachment probability reached the Minimum Attachment Level of 4.00%. However, if MPIUA elected to set the attachment probability closer to the Maximum Attachment Level of 1.50%, the notes could be upgraded to as high as 'BB-sf'.

To a lesser extent, the notes may be downgraded if the money market funds should 'break the buck', Hannover Rueck SE fails to make timely retrocession premium payments or MPIUA materially changes its mission or operations.

The catastrophe risk element is highly model-driven and actual losses may differ from the results of the simulation analysis. The escrow models may not reflect future methodology enhancements by AIR which may have an adverse or beneficial effect on the implied rating of the notes were such future methodology considered.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Insurance-Linked Securities Methodology (pub. 23 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868333

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003413

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003413

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160427006527/en/

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Christopher Grimes
Director
+1-312-368-3263
or
Committee Chairperson
Kevin Corrigan
Senior Director
+1-212-908-9156
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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