Queen Street III Capital Ltd.

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Queen Street III Capital Ltd. - At a glance:

• Issuer / SPV: Queen Street III Capital Ltd.
• Cedent / Sponsor: Munich Re
• Placement / structuring agent/s: Munich Re are arranging the deal. GC Securities are sole bookrunner
• Risk modelling / calculation agents etc: AIR Worldwide
• Risks / Perils covered: European windstorm
• Size: $150m
• Trigger type: Industry loss index
• Ratings: S&P: 'B+'
• Date of issue: Jul 2011
• Artemis.bm news coverage: Articles discussing Queen Street III Capital Ltd. from Artemis.bm

Queen Street III Capital Ltd. - Full details

Queen Street III Capital Ltd. issued $150m of notes in a single tranche which provide Munich Re with cover on a per-occurrence basis over a three-year period against certain European windstorms.

The deal runs for three years and expected maturity is in July 2014, with the chance to extend for losses to develop in three-month increments for up to two years.

The notes cover major windstorms in the following countries; Belgium, Denmark, France, Germany, Ireland, Luxembourg, The Netherlands and the UK.

For a windstorm event to qualify under the terms of the cat bond deal and hit the industry loss trigger point, they must result in an index value of above 10,000 up to an index value of 15,000. The index will be calculated by risk modeller AIR Worldwide using industry loss data provided by PERILS AG, enhanced by industry exposure data provided by AIR Worldwide.

Each year Munich Re can choose whether to reset the windstorm payout factors while the industry exposure data must be reset. AIR Worldwide will reset attachment and exhaustion points annually on the 15th June so that the new attachment probability and expected loss are equal to or less than the initial one-year attachment probability and the initial one-year expected loss for Europe windstorm. Interestingly there is a reset limitation which means that the contribution to the expected loss for storms hitting France, Germany and the UK combined cannot be less than 70%.

Ratings agency S&P say that storm surge is a significant risk to European windstorm cat bonds. They point out that of the 299 modelled storms 13 would have caused a principal loss to this cat bond through storm surge damage affecting the UK. Something for issuers and risk modelling firms to consider as storm surge is not well modelled across Europe.

Munich Re have established a new collateral fund specifically for this transaction. MEAG Queen Street III, which will be managed by a Munich Re subsidiary, was rated by S&P two days ago and is destined to hold the collateral for this transaction which will comprise highly rated U.S. Treasury bills.

This deal tripled in size having begun marketing at $50m it ended up closing at $150m due to investor demand.