Fitch Affirms Alamo Re Limited Series 2014-1 and 2015-1 Catastrophe Notes; Outlook Stable

NEW YORK--()--Fitch Ratings affirms all principal at-risk variable rate notes issued by Alamo Re Limited, a special purpose insurer vehicle in Bermuda as follows:

--$400,000,000 2014-1 class A principal at-risk variable rate notes; scheduled maturity June 7, 2017 at 'B+sf'; Outlook Stable;

--$300,000,000 2015-1 class A principal at-risk variable rate notes; scheduled maturity June 7, 2018 at 'B+sf'; Outlook Stable;

--$400,000,000 2015-1 class B principal at-risk variable rate notes; scheduled maturity June 7, 2019 at 'BB-sf'; Outlook Stable.

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

KEY RATING DRIVERS

The series 2014-1 class A and series 2015-1 class A and B notes provide multi-year protection for the Subject Business written by the Texas Windstorm Insurance Association (TWIA) on an annual aggregate basis using an indemnity trigger. The notes are exposed to insured property losses due to 'named storms' within the covered area, which solely covers the 14 first-tier, coastal counties of Texas (and a small portion of Harris County).

To date, there have been no reported Covered Events that exceed the respective Attachment Levels for any of the notes within the current Annual Risk Period that extends from June 1, 2015 through May 31, 2016.

On April 13, 2016, AIR Worldwide (AIR), acting as the Reset Agent, completed Reset Reports for the 2014-1 and 2015-1 notes that provided updated annual attachment probabilities for each class of notes for the Annual Risk Period beginning July 1, 2016 using AIR's escrowed software models and TWIA's updated Subject Business data. At each reset date, TWIA may exercise an option to decrease (or increase) the respective attachment levels on each of the classes within an exceedance probability range of 4.40% to 1.00%.

2014-1 Class A Notes: Effective June 1, 2016, the Updated Attachment Level increases slightly to about $3.245 billion (from $3.2 billion for the current Risk Period which ends May 31, 2016) and the Updated Exhaustion Level decreases to about $3.972 billion (from $4.0 billion). The updated probability of attachment decreases to 2.05% (from 2.09%). This corresponds to an implied rating of 'B+' per the calibration table listed in Fitch's "Insurance-Linked Securities Methodology". The Updated Risk Interest Spread will be 5.20%.

2015-1 Class A Notes: Effective June 1, 2016, the Updated Attachment Level increases to $2.70 billion (from $2.60 billion for the current Risk Period which ends May 31, 2016) and the Updated Exhaustion Level increases to about $3.245 billion (from $3.20 billion). The updated probability of attachment decreases to 2.58% (from 2.74%) which corresponds to an implied rating of 'B+'. The Updated Risk Interest Spread will be 5.78%.

2015-1 Class B Notes: Effective June 1, 2016, the Updated Attachment Level increases to about $3.972 billion (from $4.0 billion for the current Risk Period that ends May 31, 2016) and the Updated Exhaustion Level decreases to $4.7 billion (from $4.8 billion). The updated probability of attachment decreases slightly to 1.60% (from 1.61%) which corresponds to an implied rating of 'BB-'. The Updated Risk Interest Spread will be 4.62%.

Hannover Ruck SE, a reinsurance company that acts as a transformer, sits between TWIA and Alamo Re. Hannover's Issuer Default Rating (IDR) is 'A+' with a Stable Outlook.

The collateral asset meets Fitch's criteria requirement for 'AAA'-rated U.S. money market funds.

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 releases dated June 1, 2015 (2014-1 class A) and May 13, 2015 (2015-1 class A and class B) and available at www.fitchratings.com.

RATING SENSITIVITIES

This rating is sensitive to the occurrence of a qualifying event(s), TWIA's election to reset the applicable class within the series 2015-1 notes' attachment levels, changes in the data quality or purpose of TWIA, the counterparty rating of Hannover Ruck SE and the rating on the assets held in the respective collateral accounts.

If qualifying covered events occur that causes annual aggregate losses to exceed the series 2014-1 class A, 2015-1 class A or class B updated attachment levels, Fitch will downgrade the applicable class of notes reflecting an effective default and issue a Recovery Rating.

In the case of a future reset election by TWIA, the rating of the series 2015-1 class A and class B notes (series 2014-1 class A has reached its final reset date), movement from the respective updated attachment probabilities closer to an attachment probability of 4.00% could lead to downgrades of the applicable class(es) to as low as 'Bsf'. Conversely, if TWIA elected to move the Series 2015-1 class B attachment probability closer to 1.00%, the rating on the notes would be unaffected, while a reset of the Series 2015-1 class A attachment probability to as low as 1.00% could result in an upgrade to as high as 'BB-sf'.

To a lesser extent, the series 2014-1 and series 2015-1 notes may be downgraded if the money market funds should 'break the buck', Hannover Ruck SE fails to make timely retrocession premium payments or TWIA 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 AIR 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=1004105

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004105

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
Fitch Ratings, Inc.
33 Whitehall St.
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:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
Fitch Ratings, Inc.
33 Whitehall St.
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:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com