Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Queen Street II Capital Ltd. catastrophe bond to be issued by Munich Re


Munich Re is seeking to issue a new catastrophe bond under an Irish special purpose vehicle, Queen Street II Capital Ltd. This is Munich Re’s second Queen Street cat bond transaction, they issued €170m of catastrophe bonds under Queen Street Ltd. in March 2008. That was a three year deal so it’s expected that this new transaction will replace some of that cover for them.

This Queen Street II Capital Ltd. cat bond transaction will provide Munich Re with three years of protection on a per-occurrence basis against North Atlantic U.S. hurricane and European windstorms until March 2014. Standard & Poor’s have the deal sized in a single tranche at a preliminary amount of $100m and have given the notes a preliminary rating of ‘BB-‘. As well as being the counterparty in this risk transfer Munich Re are also arranging the deal themselves.

The transaction will provide Munich Re with cover against U.S. hurricanes in certain states (including the usual east and gulf coast states) and will utilise an industry loss index from PCS for measurement on that portion of the deals risk. The cover for European windstorms will be active for losses in Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, and the U.K. and will utilise the PERILS AG industry loss data. When losses exceed a predefined attachment point on the indices the cat bond would be triggered.

AIR Worldwide are providing risk modelling for the Queen Street II cat bond using their U.S. hurricane model and European windstorm models. For European windstorms AIR will be augmenting their own industry exposure database with the data gleaned from the PERILS industry exposure data. An annual reset of payout factors and exposure data will be undertaken which could result in changes to the attachment probability and expected loss after each reset.

Proceeds from the sale of the catastrophe bond notes by Queen Street II Capital Ltd. will be invested in a U.S. Treasury money market fund set up specifically for this transaction. A Munich Re subsidiary MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, will manage the MEAG Queen Street II fund, and is seeking a triple-A rating for it.

This is the first cat bond issuance from Munich Re of 2011. Munich Re are a regular issuer of catastrophe bonds both on behalf of themselves and other insurers. We’d expect this deal to be snapped up by investors who are aware of Munich Re’s track record in the market and as a result of their profile this could upsize.

This deal will be added to our catastrophe bond deal directory and we will update you as it progresses to market.

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