LONDON Nov 9 U.S. insurer USAA plans to raise
$250 million of protection against natural disasters with the
sale of a new catastrophe bond, despite the threat of a payout
on previous such deals following Hurricane Sandy.
Standard & Poor's said late on Thursday it had rated two
tranches of cat bonds totalling $125 million being offered by
United Services Automobile Association to cover itself against
claims arising from hurricanes, earthquakes, thunderstorms,
winter storm and wildfires in the United States.
USAA is also marketing two unrated notes for another $125
million, covering the same risks, said investors.
The new transaction is the latest from USAA's long-running
Residential Re cat bond programme and is the 19th by the
insurer, which sold the very first catastrophe bond in 1997.
Cat bonds allow insurers to pass on extreme risks, such as
those related to earthquakes or hurricanes, to capital markets
investors, and are seen as an alternative to reinsurance.
The notes offer investors such as pension funds a high yield
but they risk the loss of some or all of their principal if a
major disaster occurs.
S&P warned on Monday that losses from Hurricane Sandy could
trigger a payout on cat bonds issued by Residential Re in 2012
and 2011, and put the notes on watch with negative implications.
S&P is awaiting data from risk assessment firm AIR Worldwide
and the calculation agent to work out the probability the bonds
will be triggered.
S&P has rated two tranches of notes to be issued by
Residential Re 2012 Ltd, Series 2012-II.
The Class 1 notes are being marketed at $75 million, and
have been given a BB+ rating by S&P. The $50 million Class 2
notes have been rated BB. Both notes will use U.S. money market
funds as collateral.
The four tranches of notes will provide reinsurance cover
for USAA against potential losses of between $850 million and
$4.175 billion from a series of natural disasters over the next
four years, ac c ording to the S&P report and investors with
knowledge of the deal.
The targeted issue sizes are indicative only and could
change depending on the strength of investor demand.
AIR Worldwide will provide the risk modelling analysis,
while Goldman Sachs and Swiss Re Capital Markets will help
market and structure the bond.
-For more details on cat bond transactions, see the Thomson
Reuters Insurance Linked Securities Community here.
(Editing by Catherine Evans)