Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Munich Re planning a Queen Street III Capital Ltd. catastrophe bond


We’ve been hearing rumours in the market about potential catastrophe bond deals which are getting ready to be marketed to investors with sources insisting that at least one new cat bond will issue within the next month. Some of our sources have told us to expect a European windstorm bond as one of the issues. Now, after a little investigation, it appears likely that Munich Re will be returning to the cat bond market with a Queen Street III Capital Ltd. transaction.

A cat bond issued by Queen Street Capital III Ltd. would be the third in Munich Re’s Queen Street series of transactions. They’re first, Queen Street Ltd., was issued in 2008, matured in March 2011 and was a pure European windstorm cat bond providing €170m of cover. Their second deal in the series, Queen Street II Capital Ltd., was issued in March 2011 and provided them with $100m of cover for both U.S. hurricane and European windstorm.

Now it appears that Munich Re are likely to return to the capital markets to tap them for further reinsurance cover for their windstorm risks. If indeed a Queen Street Capital III cat bond does issue within coming weeks it is likely that it would be a European windstorm transaction considering that we are in the middle of the Atlantic hurricane season, when it is rare to see hurricane risk issued. That said, it’s not impossible as with the right deal terms and triggers some investors would likely be willing to make small investments in a new hurricane cat bond given the shortage of primary market cat bond supply.

The reasons for our assumption are two-fold. First, we noticed that today ratings agency Standard & Poor’s have issued a rating for a new fund set up as a German investment vehicle dedicated a single investor. The new fund is called MEAG Queen Street III and will only invest in short-dated U.S. Treasury bills, said S&P. The fund is managed by MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH which is a subsidiary of Munich Re and the Queen Street II Capital cat bond earlier this year utilised a collateral fund called MEAG Queen Street II. So it seems a reasonable assumption that the newly set up and rated MEAG Queen Street III is destined to be the collateral fund for a new Queen Street III Capital catastrophe bond.

Furthermore, it looks as if a new Dublin, Ireland domiciled special purpose vehicle was incorporated at the end of June and named Queen Street III Capital Ltd.

So, it appears that Munich Re will be issuing a new catastrophe bond in the near future and it’s likely that it will include, or be solely devoted to, European windstorm risk. We will of course update you as and when details of any Queen Street III Capital cat bond become available.

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