Travelers Secures Two Cat Reinsurance Deals With Cayman Islands Insurer

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December 22, 2009 Tuesday 04:49 PM EST

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Travelers Secures Two Cat Reinsurance Deals With Cayman Islands Insurer

Fran Lysiak

NEW YORK

Travelers Cos. Inc. has inked two catastrophe reinsurance agreements with a newly formed Cayman Islands insurer, with each deal providing it with up to $250 million in coverage for losses resulting from some Northeastern U.S. hurricanes.

Related to the transactions, Longpoint Re II Ltd., the Cayman Islands insurer, completed a $500 million catastrophe bond offering, Travelers (NYSE: TRV) said. The cat bond program with Longpoint Re II will replace its existing program with Longpoint Re Ltd., which will expire in May 2010, Travelers said.

Attempts to speak with Travelers weren't immediately successful.

The reinsurance it bought from Longpoint Re II is intended to work with its traditional reinsurance to provide $1 billion of protection for Northeast hurricanes with more than $2.25 billion in losses, Travelers said.

The reinsurance deals provide protection for covered events occurring before or on Dec. 18, 2012, and Dec. 18, 2013, respectively.

If a covered loss occurs, Travelers said will be able to recover amounts under the reinsurance agreements if the index losses for a single occurrence reach an initial attachment amount of $2.25 billion.

The cat bond market is poised for an active fourth quarter in 2009, a complete change from the fall of 2008 when the financial meltdown and problems with a prominent total return counter swap partner stilled the market (BestWire, Oct. 14, 2009).

According to a report issued by Guy Carpenter & Co. and GC Securities, a division of MMC Securities Corp., a number of trends are coming together this year to potentially drive a total of $3 billion to $4 billion in new cat bond issuance in 2009. The trends include an increase in risk capital and the recent super-sizing of catastrophe bonds in the third quarter of 2009 (BestWire, Oct. 14, 2009).

Recently, Swiss Re said it obtained $150 million in protection for North Atlantic hurricanes, European windstorms and California earthquakes through a new one-year catastrophe bond, Successor X (BestWire, Dec. 9, 2009).

Travelers Indemnity Co. currently has a Best Financial Strength Rating of A+ (Superior).

On the afternoon of Dec. 22, Travelers Cos.' stock was trading at $48.97 a share, up 0.61% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

December 23, 2009