Munich Re’s Queen Street IX Re catastrophe bond ‘well received’


The world’s largest reinsurance firm Munich Re said that its latest catastrophe bond transaction, the $100m Queen Street IX Re Limited, was well received by the insurance-linked securities market.

Munich Re’s latest catastrophe bond transaction completed at the end of February. Queen Street IX Re, the ninth deal to use Queen Street naming from Munich Re and the eighth since 2011, saw the reinsurer looking to expand its retrocessional reinsurance protection for the peak perils U.S. hurricane and Australian cyclone risks.

The transaction provides Munich Re with collateralized retrocession on a per-occurrence basis for just over three years, with maturity scheduled for 8th June 2017. Queen Street IX Re protects Munich Re against losses from qualifying events with a statistical return period of between 65 and 80 years per event. The cat bonds trigger uses county and line-of-business-weighted industry loss data from PCS (Property Claim Services) for U.S. hurricanes, and modelled losses calculated by AIR Worldwide in for Australian cyclones.

Munich Re said that the Queen Street IX Re cat bond was placed globally among a broadly diversified group of international investors. The transaction closed offering investors a coupon of 5.5%, having begun marketing with a range of 6% to 6.5%, representing a drop in price during bookrunning of around 12% (if you take the mid-point of the launch range).

What’s interesting to note is that Queen Street IX Re covers the same layer of reinsurance protection as its previous deal, Queen Street VIII Re Limited. Both cat bonds cover the 65 to 80 year statistical return period and have almost identical attachment points and expected loss metrics.

Queen Street VIII Re priced at 6.5% in June 2013, and now Queen Street IX Re has priced a full percentage point lower at 5.5% in February 2014. This shows that in less than a year cat bond investors have lowered their return expectations for an almost identical cat bond layer by 15%, which is aligned with declines seen in property catastrophe reinsurance pricing.

Thomas Blunck, a board member at Munich Re, commented; “With catastrophe bonds we can efficiently cover our single peak exposures like US hurricane and Australian cyclone and thereby improve the diversification of our overall portfolio. For the first time we chose Ireland as the location for a licensed SPRV. The bond has been well received by the market.”

With the value available in the catastrophe bond market at current pricing levels, it would not be surprising to see a flurry of deals launch in the run up to the U.S. hurricane season. It will be tempting, both for primary insurers and reinsurers, to try to lock in multi-year cover at the current low prices in advance of the hurricane season.

If we see an active and insured loss heavy wind season in 2014 these prices may not be seen again at such low levels for a while. So the draw for sponsors to take advantage of the pricing available right now must be strong. The issuance pipeline could be very interesting in weeks to come.

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