The world’s largest reinsurance firm Munich Re has hailed the ‘synergies’ created between large institutional investors and its core natural catastrophe reinsurance business through the completion of two Eden Re collateralized reinsurance sidecar transactions.
We covered the two sidecar deals in December, the launch of the $290m Eden Re II Ltd. as well as the renewal of its 2014 sidecar with the $75m Eden Re I Ltd. (Series 2015-1) transaction.
Today Munich Re has confirmed the two transactions in an announcement, saying that the use of sidecars to share some of its risk with institutional investors helps it to create synergies with these institutions, while also acquiring collateralized protection for a portion of its catastrophe book.
The Eden Re II Ltd. sidecar provides Munich Re with $290m of protection from a worldwide investor base for its natural catastrophe book. The cover is provided through Bermuda-registered special purpose insurer Eden Re II. Eden Re II sold participating notes to investors totaling $290m, with those proceeds serving as the collateral for Munich Re’s cover.
The Eden Re II sidecar transaction transfers natural catastrophe risks to investors via a quota-share retrocessional reinsurance agreement, with risk and premiums shared on a pro-rate basis. This allowed Munich Re to transfer a share of its non-proportional property catastrophe book, largely exposed to natural catastrophe events to Eden Re II Ltd. and ultimately to the investors.
The investors in the sidecar will receive a corresponding share of premiums and if losses hit Munich Re’s covered portfolio it can obtain relief from the quota-share protection for a risk period that ends on 31st December 2015.
Munich Re notes that through the sidecar structure investors are able to follow Munich Re’s underwriting standards in full, while Munich Re retains the majority of risk exposure from that particular book of business.
Munich Re Board Member Thomas Blunck commented on the sidecar; “This sidecar transaction provides a basis to create synergies between large institutional investors’ interest in reinsurance risk and our core business of covering the Nat Cat risk of our clients. Both our clients and our capital markets partners are benefiting from our Nat Cat know-how and our competence to write and manage such peak risks.”
Munich Re also acknowledged the Eden Re I Ltd. sidecar in the announcement as well, which it says was a renewal of its 2014 sidecar, Eden Re Ltd. The Eden Re I sidecar provides Munich Re with another $75m of cover for losses during 2015.
By using these sidecar structures to share some of its risk with institutional investors, Munich Re effectively reduces its own risk, achieves a fully-collateralized source of retrocessional reinsurance, builds relationships with investors who will likely be keen to support the reinsurers business and effectively grows its capital base for underwriting by freeing up capacity for use elsewhere.
With catastrophe reinsurance premiums having been under significant pricing pressure, Munich Re will (if it chooses) be able to divert some capital to other potentially more profitable, or less pressured, areas of the insurance and reinsurance market as a result of freeing up capital through this sidecar deal.
Munich Re structured and arranged both transactions.
For more details on reinsurance sidecar vehicles and investments view our list of collateralized reinsurance sidecars.