German reinsurer Munich Re has successfully completed their latest catastrophe bond through newly established Bermuda SPV Queen Street V Re Ltd. This is Munich Re’s fifth cat bond in the Queen Street series and their twelfth cat bond they have sponsored according to our Deal Directory listings. Queen Street V Re will provide Munich re with $75m of coverage for U.S. hurricane and European windstorm risks on a per-occurrence basis. This cat bond deal didn’t upsize as Munich Re continued their selective use of the capital markets for peak perils.
The Queen Street V Re Ltd. cat bond notes will provide Munich Re with collateralized reinsurance protection on an industry loss basis for both of the covered perils. The U.S. hurricane risk component uses a county and line of business weighted PCS industry loss index as a trigger while the European windstorm risk component uses a PERILS index on a Cresta zone weighting. AIR Worldwide provide risk modelling and will calculate an index level after a qualifying event. The notes provide protection to Munich Re for U.S. hurricane losses above an index value of 104,000, up to 136,000 and Europe windstorm losses above an index value of 16,400 up to an index value of 19,925.
The deal runs until April 2015, providing Munich Re with three hurricane seasons and three European windstorm seasons of coverage. Munich Re said in a press release that the bond provides them with protection for extreme events with a combined statistical return period of 50 years.
The deal has been placed with institutional investors mainly comprising investment funds, hedge funds, insurers and reinsurers. Standard & Poor’s rated the single tranche of notes issued by Queen Street V Re ‘B+’. The notes will pay a risk premium coupon of money market funds plus 8.5%.
Munich Re board member Thomas Blunck said; “Munich Re adheres to its strategy of selectively using catastrophe bonds as a supplementary means of transferring peak risks from our own book. The response by investors was positive despite a challenging market environment, with high spreads in other asset classes with comparable ratings. This shows that investors appreciate the diversifying effect from cat bonds that are virtually uncorrelated with trends on the capital markets as such.”