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Amtrak subsidiary enters cat bond market

Amtrak subsidiary Passenger Railroad Insurance has begun marketing a $200mn cat bond in what is only the second insurance-linked securities transaction to focus on storm surge risk, sister publication Trading Risk reported last week.

The PennUnion Re bond would also cover earthquake and wind damage from named storm events, using parametric triggers that are based on the physical characteristics of a disaster.

This would ensure a rapid payout for the rail operator in the event of a claim.

Earlier this year, Amtrak lost a long-running dispute with its (re)insurers over claims from Superstorm Sandy.

The company bought a total of $675mn insurance limit, but had a $125mn sub-limit on claims from flooding. Amtrak had hoped to claim more, arguing that storm surge losses should not be treated as a flooding event.

It also said the claims should be treated as three separate events, attempting to draw a distinction between the original flooding and rust damage that occurred after water was pumped out of its tunnels.

However, judges said that the flood sub-limit should be applied.

The PennUnion Re bond would cover storm surge risk within the New York City metropolitan area and Delaware.

The wind protection covers a number of zones in eight states including Connecticut, Delaware and Maryland, while the earthquake coverage extends over a smaller number of postcodes in five states.

PennUnion Re is expected to offer investors an insurance-linked spread of between 450 and 525 basis points, or a 2.4x multiple of the expected loss at the sensitivity case.

RMS is acting as modelling agent, while GC Securities and Goldman Sachs are acting as joint structuring agents and bookrunners.

Standard & Poor's has given the deal a preliminary rating of BB-.

The transaction has a precedent in the $200mn Metrocat deal, which was issued two years ago for the New York Metropolitan Transportation Authority.

PennUnion Re is set at a slightly riskier level than Metrocat, which had a sensitivity case expected loss of 1.71 percent.

Metrocat was the first cat bond to cover storm surge, and was brought to the market in the aftermath of Superstorm Sandy.

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