Global reinsurance giant Munich Re is revisiting its relationship with capital market investors in its collateralized reinsurance sidecar vehicle for 2023, with a first tranche of Eden Re II notes issued, albeit at smaller size than previous years.
So far, Artemis has learned that Munich Re’s sidecar vehicle Eden Re II Ltd. has issued a $17.5 million tranche of Series 2023-1 Class A notes, as a first layer of risk has been placed in advance of the end of the year.
That’s down on the Eden Re II Class A sidecar tranches of the last two years, as the Series 2022-1 Class A tranche was $42.1 million in size a year ago and a $55.1 million tranche of Series 2021-1 was issued the year before that.
Munich Re’s collateralized reinsurance sidecar has become a regular quota share feature of the January reinsurance renewal season each year.
The reinsurer has been accessing capital market investors as a source of quota share based retrocessional reinsurance protection through its Eden Re series of collateralised sidecar vehicles since 2014.
Every Eden Re transaction that Munich Re has sponsored is listed in our Reinsurance Sidecar Transaction Directory.
The Eden Re II Ltd. reinsurance sidecar is the latest iteration of the vehicle and has been in use since 2016.
It allows Munich Re to share its underwriting returns (and losses) with ILS and capital market investors, securing a source of fully-collateralized protection and partnering with investors that have an appetite for the type of risks it can cede to them.
Quota share arrangements, such as through a sidecar, can provide capital that drives growth while also moderating PML’s, enabling the reinsurer to better manage exposures, particularly in property catastrophe lines.
In recent years, Munich Re has sponsored two tranches of notes issued by its Eden Re II special purpose insurer (SPI).
The Bermuda domiciled reinsurance structure typically brings a first Class A tranche to market in December, while a second, usually larger tranche of notes tend to appear in January.
For 2023, the first tranche of reinsurance sidecar notes to emerge from Munich Re is this $17.5 million tranche of Series 2023-1 Class A notes, with maturity due for the privately placed participating notes as of March 19th 2027.
The size, being smaller than recent years, could be due to market conditions and investor appetite for quota share retro reinsurance structures, which has been diminished somewhat after consecutive loss years.
Price may also be a factor, as it’s certain the rate-on-line paid to investors in the sidecar will be up on previous years, given the hardening of reinsurance pricing.
But, Munich Re’s fully collateralised reinsurance sidecar vehicle Eden Re II clearly remains an important feature of its retrocessional arrangements, allowing it to share in the risks and returns of its underwriting with third-party investors and earn fee income in the process.
While investor appetite for reinsurance company sponsored sidecars has been affected by the loss experience some have suffered, they remain an attractive way to access the returns of a broadly diversified book of property reinsurance business that has been underwritten by a market-leading firm.
As a result, it’s encouraging to see them continuing to be used as we move towards 2023 and quota share sidecars could actually rebound as attractive investment opportunities, we believe, as the changes to terms and conditions surrounding the sidecar structure in recent years can help to make them more attractive now.
Because of this, as investor appetite for ILS rekindles, the sidecar may prove an attractive vehicle to deploy capital to and so we’re likely to see long-standing sidecar programs, like Munich Re’s Eden Re continue to be a feature of the renewals.
For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars transactions.