1 April 2015 Alternative Risk Transfer

Munich Re re-enters catastrophe bond market

Munich Re has re-entered the ILS sector with the issuance of a $100 million catastrophe bond, following last year’s scrapped transaction.

The reinsurer issued the Queen Street X Re bond in July 2014, but withdrew it stating that the notes would no longer be offered due to current market conditions as the pricing and capacity targets for the cat bond could not be met.

The bond, which will mature on June 8, 2018 and covers US hurricane and Australian cyclone risks, has been issued by the reinsurer’s special purpose reinsurer registered in Ireland.

Queen Street X Re will offer Munich Re relief for losses from extreme events with a statistical return period of between 65 and 100 years per event.

Loss events will be quantified on the basis of weighted market losses differentiated by region and line-of-business as determined by PCS (Property Claim Services) with respect to US hurricanes, and on the basis of modelled losses calculated by AIR Worldwide in respect of Australian cyclones.

Thomas Blunck, board member, said: “We have once again used a catastrophe bond to efficiently cover our single peak exposures such as US hurricane and Australian cyclone. The current market environment allowed for attractive risk spreads for investors, which at the same time made the risk transfer valuable for us. The bond has been well received by the market.”

The bond has a variable rate of interest based on the risk premium and yield paid from a US money market fund collateralising the catastrophe bond. The cat bond investors will receive a risk premium of 5.8 percent per annum. The notes have been placed globally among a broadly diversified group of international investors.

Deutsche Bank Securities acted as sole bookrunner in this transaction, while Munich Re acted as sole structurer and arranger.

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