Allstate Corp., the home and auto insurer that had $359 million of first-quarter costs from catastrophes, plans to obtain $250 million of protection with bonds designed to guard against losses linked to earthquakes and hurricanes, according to Standard & Poor’s.
The firm will buy protection from Sanders Re Ltd., a Bermuda-based special-purpose reinsurance company that plans to issue $100 million of Class A bonds and $150 million of Class B securities due in four years, S&P analysts led by Gary Martucci wrote in an April 19 report. The so-called catastrophe bonds will cover losses linked to hurricanes in states from Alabama to New York as well as earthquake damage in California.
Maryellen Thielen, a spokeswoman at Northbrook, Illinois-based Allstate, didn’t immediately respond to a request for comment on the reinsurance premium the company will pay. The Class A securities will probably be rated BB+(sf), one level below investment-grade, with the Class B notes probably receiving a grade of BB(sf), S&P said.
Similarly rated corporate bonds in the U.S. due in about four years yielded 4.1 percent last week, down from 5.66 percent a year ago, according to Bank of America Merrill Lynch index data. Dollar-denominated catastrophe bonds have returned 4.37 percent this year, exceeding the 3.61 percent delivered by corporate junk debt.