Swiss Re Insurance-Linked Fund Management

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Munich Re adjusts Q1 results for payout from triggered catastrophe bond Muteki Ltd.


Munich Re have announced their results for the first quarter of 2011 this morning. As expected they have posted a significant loss due to the disasters which have occurred in the first three months of the year in Australia, New Zealand and Japan. However they have also provided some further insight into the fated Muteki Ltd. catastrophe bond, which we confirmed as a total loss two days ago.

Muteki Ltd. was issued by Munich Re on behalf of one of their reinsurance clients, Zenkyoren the Japanese cooperative. Muteki, a parametric trigger catastrophe bond, was fully triggered and investors in the cat bond notes will lose all their principal. The $300m of cover which Muteki provided to Munich Re and Zenkyoren will therefore be taken off the reinsurance payment that Munich Re have to make to the Japanese cooperative.

Munich Re’s quarterly report says:

We posted write-ups of approximately €200m from a capital-market cover by means of which we transferred insurance risks from a major Japanese primary insurer to the capital markets on a parametric basis. These risks have been realised as a consequence of the earthquake in Japan. The write-ups are based on our calculation of the payout from the capital-market cover and are shown as a result from derivatives in the investment result. We are proceeding on the assumption that the coverage has been fully triggered.

So Munich Re’s results have benefitted from the triggering of Muteki Ltd. by lowering their Q1 loss by $300m (around €200m). That’s a use case which is exactly what catastrophe bonds were designed for.

Munich Re’s net loss for the quarter was $1.4 billion or €947m.

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