LONDON (Reuters) – American insurers Travelers Co Inc and United Services Automobile Association plan to raise about $300 million of protection against potential hurricane claims via a sale of catastrophe bonds, market sources said on Friday.
Travelers is seeking to raise about $150 million by selling cat bonds through its Longpoint Re vehicle, while USAA also hopes to raise $150 million, using its Residential Re structure.
The targeted issue sizes are indicative only and could change depending on the strength of investor demand.
Many recent cat bond deals have exceeded their original target size, reflecting growing investor interest in the securities, which offer competitive investment returns that are largely insulated from economic and financial market downturns.
Insurers have also benefited from pent-up investor demand for the securities after a spate of major natural disasters including the Tohoku earthquake choked off new issuance for much of last year.
Insurers sold almost $2 billion of cat bonds in the first three months of 2012, a record for the first quarter.
The Travelers and USAA deals come in the run-up to the June-to-November U.S. hurricane season, typically accompanied by a lull in cat bond issuance due to the heightened risk of loss. About two thirds of outstanding catastrophe bonds cover hurricane risk.
Cat bonds were developed in the 1990s to help insurers and reinsurers pass on some of the natural disaster risk on their books to capital market investors, freeing up capital for alternative lines of business.
Buyers of cat bonds receive interest payments on cash they put up to help the issuing insurer absorb claims if a catastrophe occurs.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.