Munich Re has now completed the usual two tranche issuance for the renewal of its fully collateralized reinsurance sidecar vehicle Eden Re II Ltd., with the amount of capital backing the sidecar for 2021 down some 18% at $235 million.
As we reported back in December, Munich Re completed the issuance of a first set of notes from its fully collateralized reinsurance sidecar vehicle Eden Re II Ltd., for the January 2021 renewal season, with a $55.1 million tranche of Series 2021-1 notes sold to investors.
The Eden Re collateralized reinsurance sidecar tends to feature two tranches of notes each year, likely to suit different investor appetites.
Munich Re has been accessing the capital markets for retrocessional reinsurance protection and sharing its underwriting returns with ILS investors through its Eden Re series of collateralised sidecar vehicles since 2014, with every transaction it has sponsored detailed in our Reinsurance Sidecar Transaction Directory.
Typically these feature a quota share of Munich Re’s property catastrophe reinsurance focused business.
A year ago, around the January 2020 reinsurance renewals, Munich Re renewed the Eden Re II sidecar vehicle at a total size of $285 million, across the two tranches of notes issued and sold to investors.
That was a slight step down from the 2018 and 2019 renewal issuances by the Eden Re sidecar, both of which were at around the $300 million mark.
But for 2021, the Eden Re II sidecar has shrunk even further, with a total of $235 million of notes now issued, we can reveal, down approximately 18% on the prior year sidecar transaction for Munich Re.
To add to the $55.1 million of Class A notes that Eden Re II Ltd. issued back in December, a new $179.9 million tranche of Series 2021-1 Class B notes have now also been issued.
Taking the total size of the Eden Re II 2021-1 reinsurance sidecar to $235 million for Munich Re.
As with the previously issued Class A sidecar notes, the $179.9 million of Class B participating notes issued by Eden Re II are due due for maturity as of March 21st 2025.
The Class A tranche of the Eden Re II 2021-1 sidecar is slightly larger than the 2020 issuance, but the Class B layer is the one that has shrunk to a considerably smaller size.
Of course, Munich Re is likely to flex the size of its reinsurance sidecar vehicles based on the opportunity and how attractive it is to retain more risk at the time.
With reinsurance rates up considerably at 1/1, it’s no surprise to see that Munich Re has opted to retain a little more risk that might previously have been ceded to third-party investors through its quota share sidecar Eden Re II.
We still expect to see Munich Re return with another Leo Re sidecar issuance, specifically for Dutch pension investor PGGM for who this is a dedicated, sidecar of one, structure.
Munich Re had previously said it would target property reinsurance growth in the firming market, but that hasn’t seemingly resulted in more opportunity for investors via its sidecar.
While these quota share arrangements provide capital to drive growth and also moderate PML’s, for a reinsurer like Munich Re, while also providing some attractive fee income opportunities and enabling it to better manage its exposures, that’s not to say it needs the sidecar capacity as much as perhaps some smaller players do.
Which, for investors, means they may be subjected to a downsizing, if the appetite to retain more risk increases at the sidecar sponsor. Which may be what’s happened for 2021 with the Eden Re II sidecar vehicle from Munich Re.
For more details on reinsurance sidecar investments and sidecar transactions view our list of collateralized reinsurance sidecars transactions.