Aspen Insurance Holdings Ltd. has signed an insurance policy with Deutsche Bank which is aimed at protecting up to $420 million of reinsurance receivables in the event the Bermuda company's reinsurers default on its receivables.

Aspen said the policy was groundbreaking and similar to a credit derivative. Pricing of the transaction was not disclosed.

"The insurance policy will protect a portfolio of Aspen's reinsurance contracts against the risk of default because of a reinsurer's inability to pay," said the announcement.

"At Aspen we have embraced the convergence between the traditional reinsurance market and the capabilities and depth offered by the capital markets. The ground-breaking insurance policy we announced today extracts from the best of both markets," noted chief executive Chris O'Kane.

Aspen said the five year policy "provides cover for current and future receivables under existing reinsurance policies and reinsurance policies taken out during the policy term. The policy is triggered by certain non-standard credit events designed to isolate the specific nature of counter-party risk in the reinsurance market. Policy payments are made on the basis of a customised methodology developed between Aspen and Deutsche Bank."

"The benefit to Aspen is a clear mechanism for obtaining enhanced recovery in the event of a reinsurer's default," indicated Nick Foden-Pattinson, director of R K Carvill (Holdings) Ltd., an advisor to Aspen on the transaction.

"Tapping into the capital market's appetite for credit products compliments our approach to attracting capital and managing risk, to which Aspen is committed," commented Aspen's chief financial officer Julian Cusack. "We are effectively compartmentalising risk amongst investors with different risk profiles. What makes this interesting is that there is no significant correlation of risk between a major catastrophic event and capital markets event risk,"

Aspen said that as of September 30, 2006, its reinsurance receivables totaled $788 million.