Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Queen Street X Re Ltd.

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Queen Street X Re Ltd. – At a glance:

  • Issuer: Queen Street X Re Ltd.
  • Cedent / sponsor: Munich Re
  • Placement / structuring agent/s: Munich Re is structuring the deal. Deutsche Bank Securities is bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. hurricane, Australia cyclone
  • Size: Not issued
  • Trigger type: Industry loss index and modelled industry loss index
  • Ratings: ?
  • Date of issue: Jun 2014

Queen Street X Re Ltd. – Full details:

Note: The Queen Street X Re Ltd. cat bond issuance was not completed. It was withdrawn as the capacity and price targets could not be met, we understand.

Queen Street X Re Limited is an Irish domiciled special purpose vehicle, the second in the series to be located in Europe closer to the reinsurers home territory. Munich Re is again seeking further capital markets participation in its retro program at a similar attachment probability to its previous two Queen Street cat bonds. We’re told that the deal is being marketed without a target size at this time.

With this Queen Street X Re cat bond Munich Re is seeking a source of fully-collateralized retrocessional reinsurance protection from U.S. hurricanes and Australian cyclones. The protection provided by Queen Street X Re will be on a per-occurrence basis, as were the previous two Queen Street’s, and the same triggers will be used, a county and line of business weighted PCS industry loss index for U.S. hurricanes and a postcode as well as line of business weighted modelled industry loss index for Australian cyclone risks.

The retrocessional coverage from Queen Street X Re will benefit Munich Re for three hurricane seasons, up to the end of 2016 and to May 2017 for Australian cyclone risks, so covering three cyclone seasons which run from November to April.

The probabilities of attachment, exhaustion and expected loss for Queen Street X Re are very similar to the previous two cat bonds from Munich Re, which makes it a useful deal for pricing comparison purposes. The initial attachment probability is said to be 3.92%, the exhaustion probability is 1.91% and the expected loss 2.72%. The expected loss is identical to Queen Street IX and Queen Street VIII.

As we understand it, there are no significant historical hurricane or cyclone events which would have caused a sufficient industry loss to trigger this cat bond, showing that it is a remote risk. We’re told that U.S. hurricane risk contributes just over half of this cat bonds expected loss, where as the Queen Street IX was slightly more exposed to Australian cyclones.

The price guidance on the Queen Street X Re Ltd. cat bond is reflective of the decline in catastrophe reinsurance pricing globally, with this deal launching with guidance of 4.75% to 5.5%. That compares to final pricing of 6.5% for Queen Street VIII Re a year ago and 5.5% for Queen Street IX Re in February.

The multiple tells the story of catastrophe bond market pricing declining over the last twelve months. A year ago, Queen Street VIII had a multiple of 2.4 times expected loss. In February the multiple dropped to 2.02 times expected losses. Now, the latest deal if it priced at a mid-point could see the multiple of expected loss to coupon drop below 2 times which is low for any cat bond.

Update 1:

According to sources the Queen Street X Re Ltd. catastrophe bond is expected to price at the top end of guidance, at 5.5%.

Update 2:

The Queen Street X Re Ltd. cat bond issuance was not completed. It was withdrawn as the capacity and price targets could not be met, we understand.

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