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Rating Action:

Moody's Assigns Rating to a Cat Bond issued by Vega Capital Ltd.

14 Dec 2010

New York, December 14, 2010 -- Moody's Investors Service announced that it has assigned a rating to notes issued by Vega Capital Ltd., an exempted company incorporated under the laws of the Cayman Islands (the "Issuer"). The following rating was assigned:

US $63,900,000 Series 2010-I Class C Principal At-Risk Variable Rate Notes due December 20, 2013, Assigned Ba3 (sf)

RATINGS RATIONALE

This transaction is the second issuance of the Vega Capital Ltd. catastrophe bond program. The issuance is sponsored by Swiss Reinsurance Company Ltd ("Counterparty") and is linked to the occurrence of certain earthquakes in California, certain hurricanes in the North Atlantic, certain windstorms in Europe, certain earthquakes in Japan, and certain typhoons in Japan during a risk period of three years. The transaction contains index loss-triggered and parametric-triggered losses tied to information reported by several event reporting agencies. Potential losses to noteholders are incurred based on cumulative losses from any of the five catastrophic events. Each event has a maximum annual loss amount.

Moody's rating addresses the ultimate cash receipt of all required interest and principal payments as provided by the governing documents and is based on the expected loss posed to the noteholders relative to the promise of receiving the present value of such payments. The rating is based on Moody's analysis of the probability of occurrence of qualifying events, their timing and the severity of losses experienced by investors should these events occur during the risk period. The rating also addresses the effectiveness of the documentation in conveying the risks inherent in the structure as well as the credit strength of the Counterparty and the collateral.

Moody's rating analysis considers future reserve payments that will be made by the Counterparty, which add subordination over the life of the transaction. Amounts due to the Counterparty following any triggered loss events will be paid first from amounts in the reserve account, then by a principal loss on the Class D notes, and finally by a principal loss on the Class C notes. In cases where there have been partial principal losses on the Notes, future reserve account payments will increase the principal amount of the Notes by order of seniority up to the original principal amount of each class.

Moody's evaluation included extensive review of the technical basis, methodology and historical data used to develop the probabilistic risk models used by the modeling agent, EQECAT, Inc., to analyze potential losses and for the sensitivity analysis of critical parameters of the model. The risk analysis developed by EQECAT is expressed as an annualized exceedance curve for each event built from the maximum event in each simulated year, which is then used by Moody's to calculate potential losses resulting from events. Additionally, Moody's uses the complete event set to determine the probability of multiple events in one year. In its rating analysis, Moody's used the risk analysis results developed by EQECAT then stresses the results to capture uncertainties in the modeling and examine the robustness of the ratings. The frequency of occurrence of the events were increased in incremental amounts to determine the sensitivity to the exceedence curves. By creating a simplified model of the transaction and using the modified results provided by the modeling agent as an input, Moody's can simulate the occurrence of multiple scenarios throughout the life of the transaction.

Both qualitative and quantitative considerations were incorporated when analyzing the counterparty and collateral default risks. With regard to collateral risk, the idealized expected loss of the three year Aaa collateral exposure was added to the modeled expected losses. Noteholders will receive interest on the notes for the first year regardless of principal losses. Because the counterparty makes such payments, Moody's incorporated a one year default probability of A1 (current Swiss Re Insurance Financial Strength Rating) multiplied by the fraction of interest divided by the total rated promise.

Proceeds from the sale of the Notes were used to purchase $63,900,000 of puttable notes issued by the International Bank of Reconstruction and Development (the "IBRD Notes"). The IBRD Notes are currently rated Aaa and are puttable as of the first anniversary of the transaction closing, in whole or in part at par. Any future reserve payments, or reinvestments of collateral due to an IBRD downgrade will be invested into money market funds ( "Directed Investments"). These Directed Investments must meet specific criteria, including but not limited to investing solely in direct government obligations and holding principal stability ratings of Aaa or Aaa/MR1+, as applicable.

Issuer and Counterparty entered into a Counterparty Contract, which will provide for the payment by the Issuer to Counterparty of cash settlement or payment "in kind" amounts following certain conditions to settlement being satisfied with regard to one or more events. The Counterparty payments made by Swiss Reinsurance Company Ltd along with the proceeds from the Directed Investments are designed to meet the anticipated cash flows under the Notes.

The principal methodologies used in this rating were "Moody's Approach to Rating New Catastrophe Bond Perils and the Securitization of Mortality Risk" published in September 2006, "Monitoring Catastrophe Bonds: Assessing the Impact of Hurricane and Earthquake Activity" published in October 2005, and "Moody's Approach to Rating Catastrophe Bonds Updated" published in January 2004.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

Moody's Investors Service did not receive or take into account a third-party due diligence report on the underlying assets or financial instruments in this transaction.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Joy Hart
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Assigns Rating to a Cat Bond issued by Vega Capital Ltd.
No Related Data.
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