Swiss Re Insurance-Linked Fund Management

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Queen Street XII Re dac (2016)

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Queen Street XII Re dac (2016) – At a glance:

  • Issuer: Queen Street XII Re dac
  • Cedent / sponsor: Munich Re
  • Placement / structuring agent/s: Munich Re is structuring the deal. GC Securities sole bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. hurricane, European windstorm
  • Size: $190m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: May 2016

Queen Street XII Re dac (2016) – Full details:

Queen Street XII Re dac, a newly registered Irish special purpose vehicle, to issue a tranche of catastrophe bond notes exposed to U.S. hurricanes and European windstorm risks which will be sold to investors to collateralise an underlying retrocessional reinsurance agreement.

Through the transaction, Munich Re will gain a new source of retrocessional reinsurance covering industry losses from the two covered perils, U.S. hurricanes and European windstorms, on a per-occurrence basis over four seasonal risk periods for each peril.

So Queen Street XII Re will provide Munich Re both collateralised U.S. hurricane and European windstorm retrocessional reinsurance coverage, across four-peril seasons, on an industry loss and per occurrence basis.

We understand the industry loss triggers are being provided by PCS, for the county and line of business-weighted index for U.S. hurricane risks, and PERILS AG, for the Cresta zone weighted index for European windstorm risks.

We understand that the single tranche of series 2016 notes issued by Queen Street XII Re dac will have an attachment probability of 3.53% and an expected loss of 2.71%. The notes are being offered to investors with spread guidance in a range from 5.75% to 6.25%, we’re told.

So that would result in a multiple paid to investors of 2.2 times the expected loss at the mid-point of price guidance, a multiple that drops to just over 2 times the expected loss at the warm sea-surface temperature (WSST) scenario expected loss of 2.9%.

Update 1:

Reinsurance firm Munich Re’s Queen Street XII Re dac 2016 catastrophe bond transaction could as much as double in size, with the company raising its target to $150m to $200m for the bond, while at the same time price guidance has been lowered.

The deal is now being marketed with a target size of $150m to $200m, we’re told, suggesting Munich Re will at least double the coverage that the just matured Queen Street VII Re Ltd cat bond transaction (for which this is a near replacement) provided.

In fact, if Queen Street XII Re 2016 hits the upper end of the target range, at $200m, it will actually be the largest catastrophe bond Munich Re has ever been the primary sponsor of, according to the 400+ cat bonds listed since 1997 in our Deal Directory.

The single tranche of notes to be issued launched with coupon guidance of 5.75% to 6.25%, but that range has now been reduced to 5.25% to 5.75% sources said, suggesting that the pricing will be at or below the initial expectations for Munich Re.

With the notes having an initial 2.71% expected loss, that suggests a multiple of 2.1 times at the top end of revised pricing, or lower, which would be a multiple of 1.8 times at the WSST EL of 2.9%.

Update 2:

The Queen Street XII cat bond is now set to complete at $190m, providing Munich Re with its largest source of cat bond investor backed retrocessional reinsurance ever.

At the same time as upsizing to $190m the pricing has now been fixed at the lower end of a reduced range, at 5.25%.

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