Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Queen Street II Capital Ltd. catastrophe bond completes for Munich Re


In the midst of the uncertainty surrounding the events in Japan, the catastrophe bond market will be encouraged to see the announcement from GC Securities that they have successfully helped Munich Re complete their latest catastrophe bond transaction. GC Securities have been involved in three cat bond transactions during Q1 2011.

In the Queen Street Capital II Ltd. transaction Guy Carpenter subsidiary GC Securities acted as joint-bookrunner and co-lead manager to help bring the $100m of catastrophe bond notes to market. Queen Street II provides Munich Re with three-year per occurrence reinsurance protection against hurricanes in the U.S. and windstorms in Europe. The catastrophe bond uses data from PCS and a state weighted index trigger for the U.S. hurricane risks and a PERILS country weighted index trigger structure for European windstorm risks.

The collateral for the transaction was invested in a new dedicated U.S. Treasury bill fund, called MEAG Queen Street II,  which was created by Munich Re’s asset management company MEAG for the sole purpose of investing the proceeds of the sale of the cat bond notes in certain U.S. Treasury obligations.

Cory Anger, Global Head of ILS Structuring, GC Securities said; “This transaction provides the market with an innovative, high quality, transparent risk transfer and collateral solution. The use of PERILS in insurance-linked securities transactions is growing, as investors and sponsors alike appreciate triggers based on the unbiased, post-event loss reports provided by entities like PERILS and PCS (for certain U.S. perils). The use of a dedicated U.S. Treasury bill fund is also appealing, as it was designed with respect to this specific cat bond structure.”

Chi Hum, Global Head of ILS Distribution, GC Securities commented; “GC Securities is proud to have been involved in the distribution effort of Munich Re’s latest catastrophe bond placement, Queen Street II Capital Limited. This transaction further demonstrates GC Securities’ ability to secure the most effective and efficient capacity on behalf of our clients. The success of Queen Street II Capital Limited provides further evidence of the increasing importance and utility of the catastrophe bond market as a meaningful component of an effective enterprise risk management strategy.”

A very positive point about this catastrophe bond has been the interest from investors around the world. Chi Hum noted “We also are pleased with the strong show of market support for this placement. Demand for cat bonds is becoming increasingly global, with 17 investors from North America, Bermuda, Europe and Asia-Pacific regions participating in this issuance.” It’s extremely positive to see strong support for this transaction among a good number of investors from differing global locations.

The notes priced towards the high end of guidance at 7.5% above U.S. money market funds. The notes have an expected loss of 1.59% overall, 1.09% for U.S. hurricanes and 0.5% for European windstorms.

Standard & Poor’s gave the single tranche of notes issued by Queen Street II Capital Ltd. a rating of ‘BB-‘.

As ever, further details on this catastrophe bond transaction can be found in our cat bond Deal Directory.

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