Munich Re on its role in recent Tar Heel Re Ltd. catastrophe bond

by Artemis on April 17, 2013

The worlds largest reinsurance firm Munich Re played a number of key roles in the issuance of the recently completed $500m Tar Heel Re Ltd. (Series 2013-1) catastrophe bond. Munich Re acted as co-structuring agent and co-lead manager on the transaction which effectively secured a $500m source of fully-collateralized North Carolina hurricane protection for the North Carolina Joint Underwriters Assn. (NCJUA) and the North Carolina Insurance Underwriters Assn. (NCIUA).

Tar Heel Re is the third cat bond that Munich Re have helped the NCJUA and NCIUA get to market, having previously worked on the Johnston Re Ltd. deal in 2010 and the Johnston Re Ltd. (Series 2011-1) deal. As well as its role in structuring and managing the deal, Munich Re also facilitated the reinsurance side of the transaction through a reinsurance agreement with its U.S. subsidiary Munich Reinsurance America.

The Tar Heel Re cat bond was extremely successful for the NCJUA and NCIUA, securing a larger than originally marketed layer of reinsurance protection, after the transaction upsized by 150% from an initial $200m to close at $500m. It also dropped in price, having begun at a range of 9% to 10% but by the time the deal closed it had dropped down to 8.5%, making it cost-effective for the sponsors too.

Munich Re has issued a statement on its role in the cat bond which we repeat in full below. Details on Tar Heel Re Ltd. (Series 2013-1) can be found in our Deal Directory.

Munich Re provides capital-markets solution for North Carolina Underwriting Associations

Munich Re has provided for the North Carolina Joint Underwriting Association and North Carolina Insurance Underwriting Association a US$500m catastrophe bond transaction that transfers named storm (tropical cyclones) risk in North Carolina to the capital markets. Munich Re acted as co-structurer and co-lead manager in the transaction and reinsured the risk via its US operation.

Munich Re America has reinsured a named storm risk layer of the NCJUA/NCIUA which has been fully retroceded to Bermuda-registered special purpose insurer Tar Heel Re Ltd., providing coverage of up to a maximum of US$500m on an annual aggregate ultimate net loss basis. Tar Heel Re Ltd. has issued principal at-risk variable rate notes with a 3-year risk period, due May 9, 2016.

The bond has a variable rate of interest based on the risk premium and yield paid from a fund which collateralises the catastrophe bond. This fund investing in short-dated US treasury bills has been established for this cat bond by Munich Re’s asset manager MEAG. The catastrophe bond has received a rating of B+ (sf) from Standard & Poor’s, and the risk premium is 8.50% p.a. Lead structurer, co-lead manager and sole bookrunner in the transaction was GC Securities.

“This is the third time we have succeeded in obtaining additional coverage for this major US client in the capital markets. The transaction underscores how Munich Re offers its clients the full spectrum of risk transfer solutions,” said Tony Kuczinski, President and CEO of Munich Re America.

We’ve published another article on this deal containing quotes from the NCJUA / NCIUA and GC Securities which you can read here.

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