The latest catastrophe bond from the world’s largest reinsurance company Munich Re, Queen Street X Re Limited, is set to price at the top end of guidance, another indication that insurance-linked securities (ILS) investors have established a floor for cat bond pricing.
According to sources, the pricing on Queen Street X Re, the third cat bond from Munich Re to include Australia cyclone risk alongside U.S. hurricanes, will settle at the top end of the initial guidance range showing that ILS investors are not prepared to take on risk at any cost.
With Queen Street X Re the reinsurer is looking to secure a new fully-collateralized source of three-year retrocessional reinsurance protection from U.S. hurricanes and Australian cyclones. At this stage we still do not know what the final size of the deal will be, we understand it has been marketed without a suggested deal size, although given the pricing is expected to be fixed at the top end of guidance it may not be a particularly large transaction.
The protection provided by Queen Street X Re will be on a per-occurrence basis, using a county and line of business weighted PCS industry loss index for U.S. hurricanes and a postcode as well as line of business weighted modelled industry loss index for Australian cyclone risks.
The Queen Street X Re cat bond was launched almost ten days ago with price guidance of 4.75% to 5.5%. Sources tell us that today the pricing is expected to be fixed at the upper end of that guidance, to pay investors a coupon of 5.5%.
The expected loss on this cat bond is 2.72% so for it to have priced down would have been a surprise. Even at the 5.5% level the multiple is just about two times the expected loss, which is not a significant amount for a peril which does not feature in the ILS market as often, in Australian cyclone risk.
That’s all we have on the Queen Street X Re cat bond for now. The deal is expected to price today or tomorrow, we’re told, with settlement expected within a week.