Credit Suisse’s operational risk cat bond unlikely to be triggered

DBRS Morningstar’s insurance analyst Marcos Alvarez told Bloomberg that the operational risk catastrophe bonds issued earlier this year to Credit Suisse are not expected to be impacted by the bank’s forced sale to rival UBS.

According to ILS reporting service Artemis, $217.25m of notes were issued in a catastrophe bond to Credit Suisse by Operational Re IV for operational risks, including cyber.

The write-down of the Swiss bank’s AT1 capital securities following the sale to UBS are, however, unlikely to trigger the cat bond notes.

Alvarez explained that more than one qualifying event is required to trigger the notes that provide aggregate indemnity insurance coverage for Credit Suisse’s operational risks.

The analyst told Bloomberg that the notes are likely to be moved across to UBS once its acquisition is completed.

“Since these cat bonds were issued to reduce risk-weighted assets of Credit Suisse, I would assume UBS will keep the coverage,” Alvares reportedly said.

He told Bloomberg: “Finma’s decision to wipe out the full value of Credit Suisse’s AT1 bonds should not affect these cat bonds. I believe the cat bonds will not be triggered nor redeemed in the short term.”

The fact that the sale of UBS to Credit Suisse was primarily triggered by a crisis of confidence in the bank rather than a specific set of operational losses appears to support the analyst’s view.