Societe Generale last week launched the first synthetic CDO of insurance and reinsurance entities on behalf of the world's fourth-largest reinsurer, Hannover Re. The deal, Merlin CDO I BV, applies synthetic CDO structuring techniques to the insurance and reinsurance industry.

"It's similar but different from the catastrophe bond securitizations that we have seen in the market," one market source said. "Similar in that it ultimately incorporates the risk of catastrophe bonds written by other reinsurers, but different in that this CDO functions more like a typical synthetic structure, where the structure protects Hannover Re from default by other reinsurance companies and not specifically the catastrophic risks these companies are exposed to."

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