Bonds News

USAA sells $250 mln catastrophe bond -investors

* USAA sells its 13th catastrophe bond

* Deal increased by $100 mln

* Takes 2009 catastrophe bond sales over $1 bln

LONDON, May 20 (Reuters) - U.S. military insurer USAA has sold a $250 million catastrophe bond, $100 million larger than initially planned, investors said on Wednesday.

The three-year deal will provide USAA and subsidiaries with protection against losses over $35 million from U.S. hurricanes and earthquakes, with one tranche also covering potential losses from severe thunderstorms, winter storms and wildfires.

USAA’s 13th catastrophe bond, the deal will settle on May 28, just before the June 1 start of the U.S. hurricane season. Maturity date is June 6, 2012.

Sold via Cayman Islands-based issuance vehicle Residential Reinsurance 2009 Ltd, the transaction was divided into three tranches, each of which was initially sized at $50 million.

The first, increased to $70 million, was priced late on Tuesday to yield 13 percent over three-month Libor.

The second, now sized at $60 million, was priced to yield 17 percent over three-month Libor, with the third tranche upped to $120 million and priced at three-month Liobr plus 12.5 percent.

Credit rating agency Standard & Poor’s assigned BB-, B- and BB- ratings to the three tranches last week.

Goldman Sachs was structuring agent and bookrunner for the deal, while AIR Worldwide Corp will act as calculation agent, using data from the U.S. National Hurricane Center, U.S. Geological Survey, and industry body Property Claims Services.

The transaction will not employ a total return swap (TRS), under which a counterparty is contracted to manage collateral backing the bond and make up any shortfall, with the collateral instead invested in U.S. money market funds.


Residential Re 2009 is this year’s seventh catastrophe bond, bringing year-to-date issuance to $1.215 billion -- more than one-third of the expected $3 billion total for 2009.

Munich Re MUVGn.DE and Swiss Re RUKN.VX, the world's biggest reinsurers, are also marketing new issues.

Munich Re aims to sell a 100 million euro three-year bond via SPV Ianus Capital to protect itself against losses from European windstorms and Turkish earthquakes. The deal will be the first catastrophe bond of 2009 based on a non-U.S. peril, bringing welcome diversify to the sector [ID:nL0811984].

Swiss Re, meanwhile, plans a $100 million bond to cover potential losses on U.S. windstorm and earthquake reinsurance extended to property-casualty insurer Ace ACE.N. The deal will be the third issued by SPV Calabash Re [ID:nLK179995].

No pricing has yet been given for either bond, investors said on Wednesday.

Insurers have used catastrophe bonds since the 1990s to manage their exposure to natural disasters by transferring potential losses to investors, who receive a high interest rate but risk losing their principal if a catastrophe occurs. (Editing by David Cowell) (For additional news on the insurance-linked securities market, go to here )