In December 2003, a European insurance company, Swiss Re, issued a 3 year floating rate bond maturing on January 1, 2007, with a par value of US$400 million The interest rate payments were quarterly with a coupon reset formula of 3 month U S LIBOR plus 135 basis points The principal at maturity was...

a The purpose of Swiss Re issuing this bond an asset is to cover its maturing liabilities in three years Due to uncertainties in the liabilities the bond is arranged to cover risk aspects such as unex ...

In December 2003, a European insurance company, Swiss Re, issued a 3-year floating-rate bond maturing on January

Question:

In December 2003, a European insurance company, Swiss Re, issued a 3-year floating-rate bond maturing on January 1, 2007, with a of US$400 million. The interest-rate payments were quarterly with a reset formula of 3-month U.S. LIBOR plus 135 basis points. The principal at was linked to a specifically constructed index of mortality rates (i.e., mortality index) across five countries(United States, United Kingdom, France, Italy, and Switzerland). The principal schedule at called for repayment in full if the mortality index does not exceed 1.3 times the 2002 base level during any of the three years of the life of the bond. However, if the mortality index exceeded that level, there would be an increase of5% for every change in the index by 0.01.
(a) What was the purpose of Swiss Re issuingthis bond?
(b) The Swiss Re bond is referred to as a catastrophebond. Why? Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...