Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Queen Street IX Re confirmed at $100m, pricing settles at low end


The world’s biggest reinsurance firm Munich Re has fixed its Queen Street IX Re Limited, catastrophe bond at $100m in size, while the pricing on the deal has settled at the low-end of an already reduced range thanks to investor demand.

Demand from investors for any new catastrophe bond issuance remains as high as we saw throughout 2013 and the Queen Street IX Re cat bond from Munich Re was reported to have been oversubscribed. This demand helped Munich Re to fix the size of the cat bond at the top end of its $75m to $100m target range.

So Munich Re’s latest catastrophe bond, which will provide it with a source of fully-collateralized, retrocessional reinsurance protection for the perils of U.S. hurricanes and Australian cyclones, has met the top end of its coverage expectations and at a very low price.

When the cat bond launched the notes were marketed with price guidance of 6% to 6.5%. Thanks to the strong investor demand that range was lowered to 5.5% to 6% earlier this week. The deals pricing finally settled at the bottom of that already reduced range at 5.5%.

This means that the pricing has dropped by around 12% from the mid-point of the original guidance range (6.25%). However this Queen Street IX Re cat bond provides a great comparison of how cat bond rates have declined since the middle of 2013, as Munich Re’s last cat bond, Queen Street VIII Re Limited, featured an almost identical risk profile but priced a full percentage point higher with a coupon to investors of 6.5% last June.

So Munich Re’s latest cat bond has priced around 15% cheaper in terms of rate, than a near identical transaction around eight months ago, demonstrating just how much cat bond rates have declined since last June. This is inline with the kind of price reductions which were seen on global property catastrophe reinsurance cover at the January renewals.

Completion of the Queen Street IX Re Ltd. cat bond is scheduled for the end of February, we understand. We will update you once the transaction has closed.

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