Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Queen City Re cat bond pricing drops to below guidance


Pricing expectations for American Modern Insurance Group’s first catastrophe bond, Queen City Re Ltd. (Series 2013-1), have dropped to below the initial price guidance range, as ILS investors again show their demand for new cat bond paper.

The Queen City Re cat bond which launched a week ago, is designed to provide Munich Re’s U.S. insurance subsidiary American Modern Insurance Group with three-years of reinsurance protection against named storms (so tropical storms and hurricanes) on an indemnity and per-occurrence basis.

The deal launched with a preliminary size of $75m and that has not changed at the latest update to investors. Price guidance has changed, however, the single tranche of notes being offered by Bermuda domiciled Queen City Re Ltd. launched with a coupon range of 4% to 4.75%, but that pricing range has dropped right down to 3.5% to 4%.

This three-year cat bond deal is a reasonably low-risk transaction, with an expected loss of just 0.46%, so it’s no surprise to see the pricing tighten. It’s likely that we’ll see this cat bond price nearer the bottom of this adjusted range.

ILS investors continue to show that there is excess demand for cat bond paper, as almost every transaction seen this year has found its pricing tighten before completion. This demand will continue into 2014, the end of year cat bond rush this year is not sufficient to satisfy investor demand, helping first-quarter catastrophe bond issuers obtain better pricing as investors seek to put capital to work.

The Queen City Re cat bond issuance timeline will see this deal complete before Christmas we understand, with settlement expected on the 23rd we’re told.

Read all about Queen City Re Ltd. (Series 2013-1) in our catastrophe bond Deal Directory. We’ll update you as the transaction comes to market.

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