Allstate Insurance is preparing an as-yet unsized catastrophe bond, according to a presale report published today by Standard & Poor’s.

Aon Benfield Securities, Deutsche Bank Securities, and Goldman Sachs are joint bookrunners and joint structuring agents.

The deal is designed to transfer the risk of outsized insurance claims for losses from named storms in 30 states and earthquakes, including resulting fires, in California, New York, and Washington.

The transaction, Sanders Re Ltd. Series 2014-1, will issue four classes of notes, according to S&P’s presale report. Classes A, B, and C will provide protection during a four-year period and the class D notes will provide protection during a five-year period.

S&P has assigned a preliminary ‘BB+’ rating to the class A and B notes and a preliminary ‘BB’ rating to the class C and D notes. In its presale report, the agency said that the class A notes are not currently being marketed, although they may be marketed in the future.

Catastrophe bonds are a form of reinsurance. Sanders Re will deposit the proceeds from the sale of the notes into a separate reinsurance trust account for each class of notes. The indenture trustee will invest these amounts in one or more Treasury money-market funds rated 'AAA' by S&P. If Allstate receives a certain amount of claims, it may stop paying interest or even hold on to the principal.

The class A notes will cover a percentage of losses between the initial attachment level of $4.18 billion and the initial exhaustion level of $4.33 billion. The class B notes will cover a percentage of losses between the initial attachment level of $3.83 billion and the initial exhaustion level of $4.18 billion. The class C notes will cover a percentage of losses between the initial attachment level of $3.499 billion and the initial exhaustion level of $3.83 billion. The class D notes will cover a percentage of losses between the initial attachment level of $2.954 billion and the initial exhaustion level of $3.436 billion.

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