LONDON, May 27 (Reuters) - Insurer Allianz (ALVG.DE) has closed a third catastrophe bond under its Cayman Island-based special purpose vehicle Blue Fin Ltd to cover peak U.S. peril risk - the ninth cat bond to close before the start of the U.S wind season.
This new $150 million series of Blue Fin will provide Allianz with per-occurrence and aggregate protection against U.S. hurricane and earthquakes for three years.
The $90 million Class A notes was rated B- by Standard & Poor’s (S&P) and offers a coupon of 14 percent to investors. This tranche will cover against U.S. hurricane and quake on an occurrence basis.
Blue Fin’s $60 million Class B tranche provides cover on an aggregate basis for the first time in the cat bond series and offers a coupon of 9.25 percent. This tranche was rated BB by S&P. Both tranches of risk used U.S. money market fund yields.
“The Blue Fin bond provides multi-year protection at similar rates as traditional reinsurance from a diversifying source on a fully collateralised basis,” Allianz said in a statement on Thursday.
Blue Fin’s tranche B has been structured to provide protection against combinations of medium-sized and large events - the first time Allianz has used this type of structure in a cat bond.
“In the case of a number of mid-sized events, we expect to benefit from locking in current pricing levels in a then-changing market environment,” Amer Ahmed, CFO and future president of Allianz Re said in a statement.
Allianz achieved its target size of $150 million, but the original sizes of the two tranches changed. The Class A notes dropped from $100 million to $90 million, but the Class B notes upsized from $50 million to reach $60 million.
Swiss Re Capital Markets and Aon Benfield Securities Inc. helped to arrange the bond, while AIR Worldwide Corp will carry out the risk analysis.
Blue Fin covers U.S. hurricanes in 31 U.S. states including Hawaii and the District of Columbia, and earthquakes occurring in the continental U.S. as well as Alaska and Hawaii.
The cat bond sector, in which insurers transfer risks associated with natural disasters to capital markets investors, has been dominated by U.S. peak risks in the six months before the start of the U.S. wind season. Investors say they are seeing capacity constraints for U.S. wind protection.
“Although the cat funds are not running out of money, many are reaching their capacity limits for U.S. wind,” said one Europe-based investor.
Blue Fin is the ninth bond to close, bringing total issuance for 2010 up to $1.9 billion.
U.S. insurer USAA is still marketing its four-tranche U.S. multi-peril bond, which priced earlier this week, reaching a size of $405 million - below its $500 million initial target amount, according to investors.
The bond is split into four tranches of risk; classes 1 to 3 of the bond are calculated on a per-occurrence basis and have been rated BB, B+, and B- by S&P. The fourth tranche is based on annual aggregate and was not submitted to S&P, and will not be issued with a rating.
One more U.S wind bond being currently marketed to investors would push the total number of cat bonds to 11 before June 1, according to investors. Details of the transaction have not been disclosed.
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