Allstate's first hurricane-linked catastrophe bond was given aStandard and Poor's “double-B-plus” rating yesterday as the firmjoined a long list of carriers to use that mechanism for backupreinsurance.

The Willow Re Ltd. $250 million Class B Series 2007-1principal-at-risk variable-rate notes were assigned an S&Psenior secured debt rating of “double-B-plus.”

Proceeds from the notes, according to the company, will provideAllstate with a source of index-based collateralization reinsurancefor hurricanes in the covered area–New York, New Jersey andConnecticut–on a per-occurrence basis over a three-year period.

S&P credit analyst Gary Martucci said this is the firsthurricane-linked catastrophe bond for which Allstate is thesponsor.

It is also the first issuance under Willow Re's newlyestablished $2 billion principal-at-risk variable note program.

Following the carrier's record 2005 losses, Allstate undertook amajor reinsurance-buying program and cut back in the New York Citymetro area on new coverage in an attempt to ease its catastropheexposure.

Mr. Martucci said the use of catastrophe bonds by Allstate–andrecently by companies such as Chubb, Travelers and LibertyMutual–does not necessarily mean a lack of traditional reinsuranceavailability.

“It is just a way of diversifying risk at a comparable price,”he said. “And they are fully collateralized.”

As for the rating of the note itself, Mr. Martucci said it wasbased on the modeled probability of attachment and the analysis ofthe deal structure.

The initial trigger amount is $1.6 billion, and the initialexhaustion amount is $2.3 billion. Catastrophe modeler Boston-basedAIR Worldwide will remodel the transaction each year to keep theprobability of attachment relevant to the initial probability ofattachment, while the trigger and exhaustion amounts will also bere-evaluated annually, Allstate said.