J.P. Morgan & Co. is leading a $3 billion line of credit for State Farm Insurance that would give the Bloomington, Ind., company liquidity in the event of a rash of natural-disaster claims.

The syndicated bank loan is the first for State Farm, and the latest in a spate of credits to protect insurance companies from huge claims.

In the last year banks have come to market with a $1.5 billion facility for Allstate Corp., a $1 billion credit for the Florida Windstorm Underwriters Association, and a $1.5 billion deal for Florida Residential Joint Underwriting Association.

The loans are a defense against the rising cost of natural disasters. "Hurricane Andrew in 1992 was a real wake-up call for everybody in terms of what Mother Nature could do and what the almost instant claims and cash needs could be," said a spokesman for State Farm.

The claims from Hurricane Andrew reached approximately $3.6 billion at State Farm, obliterating the record of $424 million in claims on State Farm set by Hurricane Hugo.

The total cost of Hurricane Andrew was about $16 billion.

"That was a huge jump, and caused everybody to rethink whether major disasters like hurricanes and earthquakes are even insurable," said the spokesman. The Florida Legislature is currently drafting a Natural Disasters Protection Act, to determine the future roles of the state and private companies.

Until the legislature arrives at a resolution, however, the insurance companies are potentially on the hook for future disaster claims.

As a result, the insurance companies are seeking lines of credit to add a measure of flexibility if they have a sudden need for cash. Insurers probably won't need the loans to pay off claims, said a loan syndicator, but like to have them so that they don't have to sell their investments.

As one loan syndicator put it, the loans provide "protection in case of a rainy day."

From the insurers' point of view, the syndicated loans are an inexpensive solution, bankers said.

The new facility for State Farm will be a five-year revolving credit. The price will be the London interbank offered rate plus 6.5 points and 20 basis points for the drawn portion.

There are no upfront fees for the AAA-rated insurer.

Banks, for their part, welcome the opportunity to provide highly rated insurance companies with additional services.

"Generally, these types of facilities are driven by banks that either have a relationship with the company or an intention to have one," said a loan syndicator. "Banks look at this as an opportunity to expand the scope of their services."

But syndicators were quick to deny that the loans provided an indirect way for banks to get into insurance when expanded powers in the business for banks are still being debated in Congress.

"There is no concern about banks getting into insurance because it's purely a financing activity for banks," said a loan syndicator. "We're not providing insurance in any way, shape, or form."

Bankers said the analysis for one of these loans is similar to that for any other corporate credit, although the insurance loans entail liability- side risk, as opposed to asset-side risk.

A bank meeting on the State Farm loan is scheduled for today in Chicago. Morgan will be seeking 40 to 50 banks for the loan, said market sources.

The bank is offering managing agent titles for $300 million commitments and co-agents at $200 million.

The smallest commitment level will be $50 million.

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