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AIG tests boundaries with first indemnity cat bond

American International Group (AIG) has included new specialty risks not previously seen on the cat bond market in its $100mn Tradewynd Re cat bond, which will be the firm's first insurance-linked securities transaction with an indemnity trigger.

It is also the first issued in AIG's name, as the insurer has previously sponsored cat bond deals via its National Union Fire Insurance subsidiary.

Tradewynd Re - which is currently being marketed to prospective investors - will provide per-event reinsurance for US wind and quake perils. The underlying book of business covered includes specialty risks not previously seen on the cat bond market.

Although specialty business is a minor part of the deal's exposure, the covered portfolio includes marine and aerospace lines, as well as energy risks.

Tradewynd's major exposure is to commercial property business, with consumer risks contributing almost one third of the deal's one-year expected loss.

Tradewynd Re will incept when AIG's losses from covered perils reach $4.5bn and will stretch across a $500mn layer of its reinsurance programme, exhausting when losses reach $5bn. AIG is required to retain at least 5 percent of each loss.

The risk period is also slightly longer than on most cat bonds, going over five years until 30 June 2018.

The initial pricing guidance on Tradewynd has been set at 725-825 basis points above a Treasury Money Market benchmark, which equates to a 4.7x multiple of the 1.53 percent expected loss.

This is a slightly richer multiple than some of the other bonds that came to market earlier this year.

Aon Benfield Securities is serving as joint bookrunner and structurer on the deal, with BNP Paribas the other joint bookrunner and GC Securities the joint structurer. AIR Worldwide is acting as modelling agent.

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