Swiss Re Insurance-Linked Fund Management

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Queen Street IX Re cat bond targets up to $100m, pricing drops


Market sources said today that the latest catastrophe bond from reinsurance firm Munich Re, Queen Street IX Re Limited, will target up to $100m of retrocessional cover for the reinsurer. Pricing looks to be keen, as the guidance range has been lowered.

Munich Re’s latest catastrophe bond launched a week ago, seeing the reinsurer coming back to the capital markets for another source of fully-collateralized, retrocessional reinsurance protection for the perils of U.S. hurricanes and Australian cyclones.

Queen Street IX Re is the second cat bond covering these two perils for Munich Re and has a near identical level of risk as the reinsurers last cat bond Queen Street VIII Re Limited. This makes the two transactions very useful for a comparison of cat bond pricing and how it has changed since Queen Street VII Re was issued in June 2013.

When the Queen Street IX Re cat bond launched there was no mention of the potential size of the deal, but sources told us that Munich Re is targeting between $75m and $100m of cover with this issuance. That is inline with its other recent cat bonds which have tended to be around that size.

The most interesting piece of information to come to light today is the pricing. When the Queen Street IX Re cat bond was launched it had price guidance of 6% to 6.5%. According to our sources this has now been reduced to a 5.5% to 6% range.

Munich Re’s Queen Street VIII Re cat bond, which has an almost identical risk profile priced in June at 6.5%. So the reinsurers latest cat bond could price another 15% lower than that, if it settles at the bottom of this reduced range at 5.5%.

That is inline with price declines seen in the traditional reinsurance market, where most observers said prices had fallen by around 15% at the January renewals. This suggests that cat bond rates are at least keeping pace, in terms of price declines, with traditional reinsurance cover.

The  Queen Street IX Re Ltd. cat bond is scheduled to complete before the end of the month, we understand. We will update you as the cat bond comes to market.

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