Swiss Re Insurance-Linked Fund Management

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Munich Re renews Leo Re Ltd. sidecar for PGGM at $400m


Global reinsurance firm Munich Re and the largest single insurance-linked securities (ILS) investor in Dutch pension fund manager PGGM have now completed issuance of their Leo Re Ltd. private sidecar arrangement for 2020, which is again $400 million in size.

Munich Re signMunich Re has continued its direct investment relationship with experienced insurance-linked securities (ILS) investor and Dutch pension fund manager PGGM, with the Leo Re Ltd. vehicle acting as a private sidecar for the pair.

The Leo Re Ltd. sidecar is a property catastrophe reinsurance vehicle sponsored by Munich Re and backed solely with funds managed by PGGM on behalf of the PFZW pension fund, one of the pensions it manages.

Being a quota share sidecar arrangement, on a bilateral basis between the pair, Leo Re Ltd. gives PGGM a slice of the risks and returns of Munich Re’s underwriting book, while Munich Re benefits from this direct relationship with the largest single end-investor in the ILS market in return.

The Leo Re special purpose insurer (SPI) was first used to arrange a private quota share or sidecar transaction between PGGM and Munich Re for 2017, when a $200 million fully collateralised quota share sidecar arrangement was transacted.

The size of the arrangement was then doubled for for 2018, with PGGM backing Munich Re’s underwriting to the tune of $400 million, through a $260 million Leo Re Ltd. Class A tranche and $140 million Leo Re Ltd. Class B tranche of notes.

Then, for 2019, we saw a first $20 million tranche of Series 2019-1 Class A notes issued by Leo Re Ltd. in December 2018, which was followed up by a $380 million Class B tranche that came to market in January 2019, taking the total to $400 million again.

For 2020, the Leo Re Ltd. private sidecar issued a single $630,000 tranche of Series 2020-1 Class A notes at the end of December, as we reported at the time.

As we wrote at the time, we understood that a much larger second tranche would also be issued, to bring the sidecar up to size for the 2020 underwriting year.

Now a second tranche has emerged, as Leo Re Ltd. has issued a $399.37 million tranche of Series 2020-1 Class B participating notes.

These Leo Re 2020-1 Class B notes are due March 22nd 2024, the same date as the Class A tranche and also Munich Re’s Eden Re sidecar 2020 issuance.

The Leo Re sidecar transactions between Munich Re and investor PGGM tend to feature property catastrophe reinsurance and retrocession risks, similar to Eden Re.

In fact, Leo Re can just be thought of as a kind of extension to the Eden Re quota share sidecar arrangements, but on a privately placed bilateral basis with a single investor, instead of a club deal that is more broadly syndicated as the Eden Re tranches tend to be.

So, for 2020 it looks like Leo Re Ltd. will again be a $400 million transaction, providing valuable retrocessional reinsurance to Munich Re and a dedicated and privately negotiated source of risk-linked returns for PGGM.

We still expect another tranche will be issued by Eden Re for the renewal as well, to further boost Munich Re’s sidecar arrangements for 2020, given the first tranche was just $54.6 million in size from Eden Re II Ltd.

For details of many reinsurance sidecar investments and transactions over the history of the ILS market, view our comprehensive list of collateralized reinsurance sidecars transactions.

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