The latest catastrophe bond transaction sponsored by the world’s largest reinsurance company Munich Re has had its price guidance lowered while the cat bond is marketed. Queen Street VIII Re Limited is Munich Re’s eighth cat bond to use Queen Street branding and is the first to feature Australian cyclone risk as one of the perils covered.
As well as being the reinsurers eighth Queen Street branded cat bond, this is its sixteenth entry in our Deal Directory where Munich Re is listed as a cat bond or insurance-linked securitization sponsor or cedent. That makes it one of the most prolific issuers we cover.
Queen Street VIII Re will provide Munich Re with a three-year source of fully-collateralized, retrocessional reinsurance protection to Munich Re for the perils of U.S. hurricanes and Australian cyclones. The cat bond provides cover on a per-occurrence basis both covered perils will use a type of industry loss index trigger. U.S. hurricane risks will use a county and line of business weighted PCS industry loss index, while the trigger for Australian cyclone risks is a weighted modelled industry loss index.
The notes have an attachment probability of 3.91%, an exhaustion probability of 1.88% and an expected loss of 2.72%.
The deal came to market offering $75m of notes and with an interest spread guidance range of 6.75% to 7.5%. The size of the deal hasn’t changed, according to our sources, but the price guidance range has been reduced to below the bottom end of the original range, to now offer the notes with an interest spread guide of 6.5% to 7%.
That’s a drop in pricing of just over 5.2% from the mid-point of the original price guide range to the mid-point of the newly reduced range. It’s encouraging to see that investors are clearly accepting this transaction readily, despite the fact it features the what might be an unfamiliar peril to some of Australian cyclone risk.
The Queen Street VIII Re cat bond is due to price later this week and will settle before the end of the month, thus contributing to the Q2 and first-half of 2013 cat bond issuance volume.