Fitch Upgrades Alamo Re Ltd. Series 2014-1 Class A Notes to 'B+sf'; Outlook Stable

NEW YORK--()--Fitch Ratings has removed from Rating Watch Positive and upgraded the Alamo Re Ltd. series 2014-1 class A principal at-risk variable rate notes as follows:

--$400,000,000 principal at-risk variable rate notes (expected maturity June 7, 2017) to 'B+sf' from 'Bsf'.

A Stable Rating Outlook has been assigned.

KEY RATING DRIVERS

The notes are exposed to insured catastrophe losses due to 'named storms' and its ensuing perils (such as wind, gusts, hail, rain, tornadoes) on a per-occurrence, indemnity basis from subject business written by the Texas Windstorm Insurance Association (TWIA). The subject business covers the 14 first-tier, seacoast counties of Texas (and a small portion of Harris County).

Fitch initially rated the Alamo Re Ltd. series 2014-1 class A notes at 'Bsf' and received notification from AIR, which serves as the Reset Agent, that the modeled attachment probability of the transaction will be lowered to 2.09% from its initial annual attachment probability of 3.80%. The crossover point between 'B' and 'B+' on Fitch's Insurance Linked Securities Calibration Table is 3.015%. AIR also recalculated the risk interest spread for the 2014-1 class A notes to 5.24%, a decrease from the initial spread of 6.35%.

The reset will move the attachment level of the series 2014-1 class A notes up to $3.2 billion from the initial attachment level of $1.9 billion and will increase its insurance percentage to 50% of its respective layer, up from approximately 30%. As of the reset date of June 1, 2015 the series 2014-1 class A notes will be layered in between the series 2015-1 class A (IDR 'B+sf') and class B notes (IDR 'BB-sf').

The reset date June 1, 2015 marks the beginning of the second of three annual risk periods for the series 2014-1 over the term of the notes. The final reset date for the series 2014-1 class A notes will be June 1, 2016 using AIR's escrowed software models and TWIA's updated subject business data. If TWIA does not elect to reset the attachment probabilities, the reset agent will adjust the attachment level to maintain the exceedance probabilities of the preceding risk period, using the updated subject business profile.

RATING SENSITIVITIES

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

If a qualifying covered event occurs, Fitch will downgrade the note to reflect an effective default, and issue a Recovery Rating.

In the case of a reset election by TWIA, the rating would not be sensitive to a movement from the initial 3.80% exceedance probability to a probability as high as 4.40%, since both probabilities imply a 'Bsf' rating. However, if as of the June 1, 2016 reset date TWIA elects to move closer to an exceedance probability approaching 1.75%, the notes at that time could be upgraded to as high as 'BB-sf'.

The escrow model 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. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Insurance-Linked Securities Methodology (pub. 08 Aug 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752532

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985708

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Helen Anagnostos, +1-212-908-0876
Director
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Christopher Grimes, +1-312-368-3263
Director
or
Committee Chairperson
Kevin Corrigan, +1-212-908-0500
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Helen Anagnostos, +1-212-908-0876
Director
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Christopher Grimes, +1-312-368-3263
Director
or
Committee Chairperson
Kevin Corrigan, +1-212-908-0500
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com