Queen Street XI Re dac

With this issuance the Irish domiciled Queen Street XI Re dac will seek to issue a single tranche of notes to investors, with the capital raised collateralising a retrocessional reinsurance agreement with Munich Re. Currently no size of this catastrophe bond tranche has been disclosed, we understand.

The protection will cover Munich Re for certain losses from U.S. hurricanes and Australian cyclones, both perils on a per-occurrence basis. U.S. hurricane protection will be via an industry loss trigger, county and line-of-business weighted featuring PCS data. Australian cyclone protection will be via a postcode and line-of-business weighted modelled loss trigger.

The coverage will be effective until mid-2019, so providing Munich Re with a source of retrocessional reinsurance for three U.S. hurricane seasons but almost four Australian cyclone seasons.

The notes to be issued by Queen Street XI Re dac will have an initial attachment probability of 3.62%, exhaustion of 2% and an expected loss of 2.68%. The expected loss on a sensitivity case is said to be 2.86%. The hurricane expected loss is 1.2% and the Australian cyclone 1.51%, suggesting that cyclones in Australia are the bigger threat to the cat bond notes.

The as yet unsized tranche of notes are being offered to investors with coupon guidance of 5.75% to 6.5%, we understand.

At the bottom end of guidance the multiple would be 2.16 times the base expected loss. At the upper end 2.43 times. Using the sensitivity case those figures drop to 2.01 and 2.27 times the EL.

We understand that this, Munich Re’s 12th issuance through a vehicle named Queen Street, is its first to use an Ireland domiciles ‘designated activity company’, hence the ‘dac’ after the deal name. Previous Queen Street’s have used an Irish special purpose insurance vehicle.

The 2014 Companies Act or Ireland changed the rules regarding limited companies and the new designated activity company. DAC’s are limited by activity through their clause, constitution and articles of association, making them the new Irish vehicle suitable for use as a cat bond SPV.

Update 1:

The deal size was set at $100m of retrocessional protection for Munich Re.

At the same time the initial coupon guidance has been fixed at a level of 6.15%, just slightly above the mid-point of the launch guidance of 5.75% to 6.5% (6.125%).

With the expected loss for this cat bond initially set at 2.68%, that pricing at 6.15% will reflect a multiple of 2.29 times the EL paid to the investors, in line with recent issuance.