Fitch Publishes Updated Global Catastrophe Bond Rating Criteria

Business Wire, March 11, 2008

CHICAGO -- Fitch Ratings has updated its global ratings criteria for catastrophe bonds. Catastrophe bonds are structured financings whose payments to investors are exposed to the risk of catastrophic events such as hurricanes, earthquakes, wind storms and wild fires. Catastrophe bonds are one of many types of insurance-linked securities (ILS).

Issuance of catastrophe bonds continues to grow. A record $7 billion in new catastrophe bonds were issued in 2007. This far surpasses the previous record of $4.7 billion set in 2006. In addition to the increased size and volume of transactions, this continues to be a time of innovation and rapid change for the catastrophe bond market, with new hybrid structures and variations on traditional structures being introduced regularly.

This new methodology reflects Fitch's current thinking on these new structures and incorporates a new default grid derived from Fitch's leading-edge Prism insurance capital model. Under the new Fitch methodology, measurement of the insurance risk embedded in catastrophe bonds is symmetrical with the reinsurance credit given to the insurers who sponsor the bonds.

In a notable change from prior methodology, Fitch now rates all catastrophe bonds using a probability of loss (PL) benchmark. While Fitch has historically rated investment grade catastrophe bonds based on PL, non-investment grade catastrophe bonds have been rated based on an expected loss (EL) methodology which also considered the level of expected recovery given default. Fitch's approach to rating catastrophe bonds is consistent with its approach to rating other structured finance transactions.

This new Criteria report, 'Catastrophe Bonds,' is now available on www.fitchratings.com under Financial Institutions Insurance Criteria Reports. It supplements Fitch's primary ILS rating methodology, which is outlined in a separate report, 'Insurance-Linked Securities: Ratings Criteria (Global),' dated Feb. 4, 2008, by providing additional details on how the general criteria are applied to catastrophe bonds. The new criteria replace Fitch's prior catastrophe bond criteria.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.