April 18, 2011 / 2:53 PM / 9 years ago

CORRECTED - (OFFICIAL)-S&P puts 16 catastrophe bonds on negative watch

(Corrects headline and throughout to show that 16 bonds were put on watch, not 17. S&P revised its statement)

* All 16 modeled by Risk Management Solutions

* Follows changes by RMS to its hurricane model

NEW YORK, April 18 (Reuters) - Ratings agency Standard & Poor’s put 16 catastrophe bonds on negative credit watch on Monday after the company that did the projections behind the bonds changed its models in a way that increases loss estimates.

S&P said the 16 bonds came from six series — Ibis Re Ltd, Lodestone Re Ltd, Montana Re Ltd, Foundation Re III Ltd, Longpoint Re II Ltd and Calabash Re III Ltd — that cover U.S. hurricane risk and are based on older models from Risk Management Solutions, or RMS.

Insurers and reinsurers use catastrophe bonds to transfer major risks on their books, such as for storms and earthquakes, to capital markets investors, thereby freeing up capital to underwrite new insurance business.

RMS published major changes to its U.S. hurricane model in February. S&P said the changes in the model were significant enough to prompt a review.

Completion of the ratings review is expected by the end of May, and the results could be substantial.

“We expect any rating actions to be between one and three notches, though it is possible for changes to be greater or for there to be no change,” S&P said in a statement.

All 16 bonds were already rated below investment grade.

Five catastrophe bonds totaling $1.05 billion have been issued so far this year — all covering U.S. hurricane risk as part or all of their risk portfolio. None of the five investors have used the RMS model in crafting their bonds. (Reporting by Ben Berkowitz, additional reporting by Sarah Mortimer in London; Editing by Lisa Von Ahn)

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