Travelers to get hurricane loss protection until 2016 through $300 million cat bond issue

Long Point Re III Ltd. has issued US$300 million worth of three-year cat bonds to provide The Travelers Companies Inc. with protection from hurricane losses in the northeastern United States.

Travelers had earlier reported US$669 million in after-tax catastrophe losses attributable to the storm resulting from Hurricane Sandy.

Marsh & McClennan Companies’ GC Securities unit is offering the bonds in the U.S., which are intended to cover about one-fourth of Travelers’ ultimate net losses, on a per occurrence basis, in the event of a hurricane.

In a separate press release, Swiss Re stated it was the lead structurer and joint bookrunner for the offering.

The bonds, dubbed the “Series 2013-1 Notes,” provide coverage for hurricanes affecting the area from Virginia to Maine, GC Securities stated.

“This is the second time that Travelers has accessed indemnity triggered, fully collateralized reinsurance protection from the catastrophe bond market,” GC Securities stated in a press release Monday.

“This protection was further enhanced by several new features that provide flexibility to Travelers, including an expanded hurricane definition, the ability to adjust the protection layer within a defined range upon an annual reset and incorporating an optional redemption feature.”

The bonds are rated BB by Standard & Poor’s Financial Services LLC, meaning S&P considers them to be “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.”

The yield is 4% and the maturity date is May 18, 2016.

According to a presale report last month by S&P, the ceding insurers were The Travelers Indemnity Co., Travelers Casualty and Surety Co., St. Paul Fire & Marine Insurance Co. and The Standard Fire Insurance Co.

S&P noted the Series 2013-1 notes will cover 27.27% of Travelers’ “ultimate net losses between the attachment point of $1.25 billion and the exhaustion point of $1.80 billion,” on a per-occurrence basis.

“Ultimate net loss does not include extra-contractual obligations and losses in excess of policy limits,” S&P stated. “There will be a limit of $20 million loss per risk.”

S&P added the risk period is for three years starting from May 17, 2013 and the transaction “could extend by up to 24 months in three-month increments beyond the scheduled redemption date to allow for loss development and reporting; however, the risk period will not be extended.”

The coverage area, according to the S&P pre-sale report, includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and the District of Columbia.

Of the US$689 million Travelers reported in after-tax catastrophe losses in the fourth quarter of 2012, $669 million resulted from the storm resulting from Storm Sandy.

Hurricane Sandy was downgraded to post-tropical storm status when it made landfall in New Jersey on October 29, 2012.

In the fourth quarter of 2012, Traveler reported an underwriting loss in personal insurance of $307 million, compared to an underwriting loss of $16 million during the fourth quarter of 2011.

“In personal insurance, both auto and homeowners results were significantly impacted by catastrophe losses,” president and chief operating officer Brian MacLean stated in February in the firm’s year-end filing with the U.S. Securities and Exchange Commission. “While we were very pleased with our homeowners results given Storm Sandy, we remain concerned about uncertain weather patterns and we will continue to seek improved pricing, terms and conditions. “