A newly created Cayman Islands reinsurance company that is providing up to $250 million of protection to a US insurer in the event of a hurricane striking the states of Connecticut, New Jersey or New York over the next three years, has been assigned a debt rating of "bb+" by AM Best on its variable rate notes for that business.

That rating has been attached to the $250 million Class B, Series 2007-1 principal-at-risk variable rate notes that will become due on June 16, 2010.

They have been issued by Willow Re Limited, a newly created Cayman Islands exempted company licensed as a Restricted Class B Insurer in the Cayman Islands.

The notes are the first series issued under the issuer's $2 billion principal-at-risk variable rate note program. The rating outlook is stable.

The primary business purpose for the creation of the issuer is for the issuance of the notes and the service and performance of various agreements entered into, including the reinsurance agreement between the issuer and Allstate Insurance Company and/or any affiliate of Allstate, the swap agreement between the issuer and Lehman Brothers Special Financing and other covenants.

The purpose for issuing the notes and the issuer entering into the respective reinsurance agreements is to provide Allstate with a program for obtaining multi-year reinsurance protection for certain covered events within a specified covered territory.

Under the reinsurance agreement, the Willow Re will provide Allstate with up to $250 million of aggregate protection over a three-year period beginning June 15 this year, when the event index value caused by a US hurricane event occurring in the Northeast territory (defined as Connecticut, New Jersey and New York) exceeds a specific attachment point.

Calculation of the event index value amount is formula-driven, which takes into consideration specific state pay-out factors; the industry loss amount applicable to the covered event as published by the Property Claim Services (PCS), a provider of catastrophe information for the property/casualty insurance industry; and a pre-determined automobile loss gross-up factor.

In exchange for receiving the multi-year reinsurance coverage, Allstate will make periodic premium payments to the issuer.