Queen Street IX Re Ltd.

Queen Street IX Re Limited is an Irish domiciled special purpose reinsurance vehicle, interesting as Munich Re’s Queen Street cat bonds have tended to be Bermuda domiciled in the past. The vehicle will issue a single tranche of catastrophe bond notes for the purpose of collateralizing a retrocessional reinsurance contract for Munich Re. The deal is not being marketed with a preliminary size, Artemis understands, so at the moment it is not known how large this cat bond could become.

The reinsurance protection provided by Queen Street IX Re will be on a per-occurrence basis over just more than three years. The risk period for U.S. hurricane events will run from March 1st 2014 to December 1st 2016, while for Australian cyclones the risk period will run from March 1st 2014 to May 31st 2017.

Both of the covered perils will use a type of industry loss index trigger. The trigger for U.S. hurricane risks is a county and line of business weighted PCS industry loss index, while the trigger for Australian cyclone risks is a post-code and line of business weighted modelled industry loss index.

The attachment, exhaustion and expected loss for the notes are identical to Munich Re’s Queen Street VIII cat bond, coming in with an attachment probability of 3.91%, an exhaustion probability of 1.88% and an expected loss of 2.72%. Australian cyclone risks contribute just over half (56%) of the expected loss of the cat bond, at 1.51% compared to 1.23% for U.S. hurricane risks.

One difference between this Queen Street IX Re cat bond and Munich Re’s previous Queen Street VIII Re deal is the pricing guidance. Despite the fact that the risk levels are identical the price guidance on Queen Street IX Re is lower from the launch. The Queen Street IX Re cat bond has launched with a price guidance range of 6% to 6.5%.

The Queen Street VIII Re cat bond launched with price guidance of 6.75% to 7.5%, which was subsequently tightened to 6.5% to 7% and settled at 6.5%. So Munich Re’s latest cat bond is already pitching itself as priced more cheaply from launch and it will be interesting to see where this deal settles to compare price declines on cat bond issuance since last June.

For comparison, the mid-point of launch price guidance of Queen Street IX Re is over 12% lower than the mid-point of launch guidance of Queen Street VIII Re and 4% lower than the earlier deal settled at.

Update 1:

We understand that this cat bond is targeting between $75m and $100m of cover for Munich Re.

Pricing has declined to a 5.5% to 6% range.

Munich Re’s Queen Street VIII Re cat bond, which has an almost identical risk profile priced in June at 6.5%. So the reinsurers latest cat bond could price another 15% lower than that, if it settles at the bottom of this reduced range at 5.5%.

Update 2:

Munich Re fixed this cat bond at $100m in size thanks to strong investor demand.

The pricing settled at the bottom of the already reduced range, at 5.5%.