Queen Street VI Re Ltd. – Full details:
This is Munich Re’s sixth Queen Street cat bond. Queen Street Re VI Ltd., a Bermuda domiciled special purpose insurer, has been formed to issue catastrophe bond notes designed to provide Munich Re with a source of fully-collateralized retrocession reinsurance coverage providing protection on a per-occurrence basis for U.S. hurricane risks from 1st August 2012 to 31st March 2015 and European windstorm risks from October 2012 and 31st March 2015.
For a hurricane event to be covered under the terms of the deal they must have a PCS catastrophe number and impact somewhere in the defined covered areas of the U.S. states of Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, and the District of Columbia. With this deal Munich Re are seeking broad hurricane coverage along the entire length of U.S. coastline that has exposure to this peril.
For a European windstorm event to qualify as a covered event it must be a large enough storm to be identified by PERILS and impact somewhere in the covered area of Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the U.K.
The notes cover losses between the hurricane index value attachment point of 84,000 and the hurricane index value exhaustion point of 130,000, and losses between the European windstorm index value attachment point of 13,000 and the European windstorm index value exhaustion point of 17,500. Both index values are calculated on a per-occurrence basis.
AIR Worldwide will calculate an index value after being notified of a qualifying event. The index value for U.S. hurricane risks will be based on industry losses reported by PCS by state and line of business, which AIR will disaggregate to county using its modeled industry loss allocation and predetermined payout factors by county and line of business. The index value for the European windstorm risk will be based on industry losses reported by PERILS AG and predetermined payout factors by CRESTA zone, including constant exchange rates for Denmark, the U.K., Norway, Sweden, and Switzerland.
The deal features an annual reset to allow Munich Re to reset payout factors and there are limitations for certain covered areas as to how much they can contribute to expected losses so as to prevent the deals risk becoming weighted to one region, for example Florida.
The overall initial attachment probability for the transaction is 3.87%, the expected loss is 2.71% and the exhaustion probability is 1.84%. Fir U.S. hurricane the attachment probability is 1.8%, the expected loss is 1.23% and the exhaustion probability is 0.75%. For European windstorm the attachment probability is 2.09%, the expected loss is 1.48% and the exhaustion probability is 1.09%.
Only one historic hurricane event would have reached the index attachment point. The 1926 NoName6 hurricane which impacted Florida and Alabama would have caused a loss to noteholders of approximately 37% of the notional balance of the notes. There have been no historic European windstorm events which would have breached the index attachment point.
Collateral will be deposited in a collateral account and then transferred to a specially established Treasury money market fund, MEAG Queen Street VI fund. Standard & Poor’s gave the MEAG Queen Street VI fund a ‘AAAm’ rating.
Standard & Poor’s have given the single tranche of notes to be issued by Queen Street VI Re Ltd. a preliminary rating of ‘B’.
Update: Queen Street VI Re Ltd. will likely secure $100m of cover for Munich Re. The latest news on pricing is that the transaction has priced below the expected range due to investor demand.
The original forecast pricing range was 10.75% to 11.5%, but the deal has actually finalised at 10.35%.
Munich Re say say that the cover from Queen Street VI provides them with protection for losses from extreme events with a combined statistical return period of around 35 years. Queen Street III, Queen Street IV and Queen Street V all were structured to provide cover for events with a combined return period of 50 years, so covering lower probability events than this latest deal.