Global reinsurance giant Munich Re is close to completing a renewal of its Eden Re II Ltd. fully collateralised reinsurance sidecar vehicle for 2022, with a $42.1 million tranche of Series 2022-1 Class A notes the first to come to light.
It’s a smaller Class A note issuance than we saw from Munich Re’s flagship, multi-investor reinsurance sidecar last year, when a $55.1 million tranche of Series 2021-1 were issued.
Munich Re’s collateralized reinsurance sidecar is one of the regular quota share features of the January reinsurance renewal season.
Munich Re has been accessing the capital markets for retrocessional reinsurance protection, sharing its underwriting returns (and losses) with ILS and capital market investors through its Eden Re series of collateralised sidecar vehicles since 2014.
Every Eden Re transaction it has sponsored is detailed in our Reinsurance Sidecar Transaction Directory.
Typically, two tranches of notes are issued by the Eden Re II special purpose insurer (SPI) each year, with the Bermuda domiciled structure bringing a first to market in December, while a second, typically larger tranche of notes tends to appear in January.
For 2022, the first tranche of reinsurance sidecar notes to emerge from Munich Re is this $42.1 million tranche of Series 2022-1 Class A notes.
It’s smaller than the Class A tranche of all previous years, which is perhaps a reflection of the more challenging market conditions, as well as some investors shying away over time from the larger, more established sidecars, after years where attrition has been suffered due to catastrophe loss events.
Munich Re’s fully collateralised reinsurance sidecar vehicles, of which it has Eden Re II and also its private sidecar arrangement with pension investor PGGM through Leo Re Ltd., remain an important feature of its retrocessional arrangements, allowing it to share the risks and returns of its underwriting with third-party investors and earn some fee income in the process.
For 2022, special purpose insurer (SPI) Eden Re II Ltd. has issued $42.1 million of Series 2022-1 Class A participating notes, which are due for maturity as of March 20th 2026.
The notes have been issued on behalf of a 2022-1 segregated account of Eden Re II Ltd. and have been sold to qualified institutional investors, with the collateral used to support a retrocessional reinsurance agreement, which we expect will be a property catastrophe quota share, between Munich Re and Eden Re II.
Our sources suggest that investors have been demanding again in sidecar renewal negotiations for 2022, wanting improved terms on buffer clauses and more transparency around the potential for collateral to be held.
With Munich Re one of the largest reinsurers in the world, it is well set-up to provide its sidecar investors with rich information on its losses, to ensure they are kept informed as the risk period for the sidecar notes progresses.
Global reinsurers, such as Munich Re, continue to rely on the capital markets and their collateralised reinsurance sidecar vehicles as a route to access efficient capital to support their underwriting.
Quota share arrangements such as these provide capital that helps to drive growth and also moderate PML’s, while providing attractive fee income opportunities and enabling the reinsurer to better manage its exposures, particularly in property catastrophe risks, by sharing in the risks and returns of its portfolio with capital market investors.
With catastrophe rates hardening, reinsurers are likely to use their sidecars to help them expand their books, while controlling their exposures.
For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars transactions.