Swiss Re Insurance-Linked Fund Management

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Queen Street IV Capital Ltd. catastrophe bond sponsored by Munich Re comes to market


Regular catastrophe bond sponsor Munich Re are once again seeking to issue another transaction in their Queen Street series of deals. Queen Street IV Capital Ltd. is  being marketed to investors as a single tranche catastrophe bond seeking to issue notes which would provide Munich Re with $75m of cover over nearly 3.5 years (more on the duration of this deal below) for certain U.S. hurricane and European windstorm risks.

Queen Street IV Capital Ltd., an Irish domiciled SPV, will issue cat bond notes providing protection on a per-occurrence basis over the risk period to Munich Reinsurance Co. The cover is for two types of risk and here’s where the duration of the deal gets interesting. Certain North Atlantic U.S. hurricanes in selected states will be covered between April 2012 and March 2015, a smart move to issue at this time with a delayed start date as the pricing can be more attractive than issuing a hurricane exposed cat bond nearer the start of the storm season. The European windstorm cover will run between November 2011 and March 2015, again a smart move as it will cover three full European wind seasons. Both types of cover are open to possible extension, in three-month increments, of up to 24 months for loss calculation, development and reporting.

The Queen Street IV Capital notes cover U.S. hurricane risks within the District of Columbia and the states of Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, and West Virginia. European windstorm is covered in Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, and the UK.

Munich Re are the counterparty to the risk transfer contract with Queen Street IV Capital and also act as arranger of the transaction. AIR Worldwide are providing risk modelling and analysis services and act as calculation agent when events occur. Losses will be triggered on an industry loss basis using indices provided by Property Claims Services (PCS) for U.S. hurricane risk and PERILS AG for European windstorm risk. The index value for U.S. hurricanes will be based on industry losses reported by PCS and predetermined payout factors by state. The index value for European windstorms will be based on industry losses reported by PERILS AG and predetermined payout factors by country, including constant exchange rates for both Denmark and the UK.

The cat bond provides cover to Munich Re for U.S. hurricane losses above an index value of 104,000, up to 136,000, and European windstorm losses above an index value of 16,000 up to an index value of 19,530 (both on a per-occurrence basis). Both U.S. hurricane and European windstorm payout factors can be reset if chosen on an annual basis, the industry exposure data for both perils must be reset.

Proceeds from the sale of the notes will be invested into U.S. Treasury Money Market Funds rated ‘AAA’. Strangely, Munich Re aren’t using another MEAG fund as they have for most previous Queen Street cat bond deals.

Standard & Poor’s have given the $75m of Queen Street IV Capital Ltd. cat bond notes a preliminary rating of ‘BB-‘.

It will be interesting to see if this deal gets upsized before close as it’s quite a small transaction to cover these two risks. Investor demand is likely to be high and the premium paid by this cat bond could be attractive due to the mixed risk component. We’ll update you as the deal comes to market and you can always read full details of this and all other Queen Street catastrophe bonds in our Deal Directory.

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