A number of companies operated by AXIS Capital Holdings are seeking re-insurance through the catastrophe bond market.

They are the ceding insurers in a cat bond deal that one market source familiar with the transaction said should come in near $200 million.

Standard & Poor’s has given the deal a preliminary rating of ‘BB-(sf).’ The expected maturity is three years.

With Aon Benfield Securities as the sole bookrunner, the transaction is being issued through a vehicle called Northshore Re.

The bond covers losses in defined geographic area from natural disasters such as hurricanes or earthquake, as identified by the property claims services (PCS) division of Insurance Services Office.

The rating basically reflects that chance that an event takes place and triggers losses. The probability is determined based on models drawn up by AIR Worldwide Corp (AIR).

The deal might not fully repay investors if a trigger is tripped. The triggers are based on modified PCS index-based industry losses, as opposed to indemnities. The latter tend to have a lower threshold and would therefore carry more risk for bondholders.

On the other hand, S&P pointed out that, notwithstanding AIR’s deep database, information on industry losses is not as strong as in some indemnity deals in which the ceding insurance company has good data on all its exposures.

The agency noted that AXIS has “a high risk position primarily due to the potential volatility in its capital and earnings arising from its substantial exposure to property catastrophe and terrorism risks.”

The bond covers losses from hurricanes in over 30 states, including Hawaii, as well as losses from earthquakes in all 50 states and the District of Columbia.

Cat bonds entered the mainstream consciousness a few weeks ago when New York's Metropolitan Transportation Authority announced it was doing a deal. That transaction was upsized to $200 million from $125 million and priced at 450 basis points over Money Market Treasury Fund earnings.

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