Swiss Re Insurance-Linked Fund Management

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Queen Street XII shows Munich Re’s desire to cultivate ILS relationships


The successful and efficient execution of the $190m Queen Street XII Re dac 2016 catastrophe bond transaction showed global reinsurance firm Munich Re’s desire to build stronger relationships with the ILS investor community, according to broker Guy Carpenter.

David Priebe, Vice Chairman of reinsurance broker Guy Carpenter and Head of its ILS specialist unit GC Securities, explained; “Queen Street XII Re further demonstrates Guy Carpenter and GC Securities’ commitment to providing alternative capital retrocession solutions to reinsurers. Munich Re’s continued desire to further cultivate its relationships with the ILS investor community assisted in offering efficient risk capitalization.”

The Queen Street XII Re cat bond is the twentieth successfully issued transaction we have listed in our catastrophe bond Deal Directory for which Munich Re is listed as sponsor and the twelfth cat bond to use the Queen Street naming convention.

As the reinsurance firm seeks to leverage an increasing amount of third-party, ILS investor backed capital within its retrocession program, with this transaction being the largest cat bond Munich Re has sponsored so far (based on currencies converted at today’s date), it is receiving increasing support from the ILS investor base.

Chi Hum, Global Head of ILS Distribution at GC Securities, explained; “The strong market support for Queen Street XII Re demonstrates the market’s appreciation for Munich Re’s consistent and repeat sponsorship of cat bonds, as well as the company’s reputation in the (re)insurance market. Strong investor interest from more than 20 participating investors and an oversubscribed order book resulted in successful execution at an attractive price for this capacity.”

The cat bond transaction featured a single class of notes totaling $190m, which were issued through a newly formed designated activity company (dac) domiciled in Ireland, Queen Street XII Re dac, to provide Munich Re with an expanded source of capital market backed retrocessional reinsurance.

The notes provide Munich Re with four seasons of per-occurrence protection from U.S. hurricanes and European windstorms, both on an industry loss basis. The triggers are based on a weighted industry loss index using industry insured losses as reported by Property Claim Services for the U.S. hurricane risks and PERILS AG for European windstorm risks.

GC Securities explained that the Queen Street XII Re cat bond featured a first for Munich Re, as the collateral for the notes is invested initially in a putable note issued by the International Bank of Reconstruction and Development (IBRD). GC Securities said this is the first time Munich Re has used a putable IBRD note in its Queen Street series of cat bond deals.

Cory Anger, Global Head of ILS Structuring at GC Securities, stated; “Favorable market conditions coupled with Munich Re’s consistent approach to the market and thoughtful structuring decisions (including the first time use of IBRD putable notes) allowed them to most efficiently and effectively cede risk to the ILS investor community.”

The thoughtful structuring of risks and subsequently their efficient marketing and placement with the ILS investor community, can enable sponsors to reap benefits both in terms of size and the pricing of the protection secured. Munich Re benefited positively on both points, according to GC Securities.

“Investor support aided efficient execution of the transaction such that the transaction nearly doubled in volume while pricing tighter than initial guidance. It was an honor and privilege to market yet another Queen Street issuance,” Cory Anger explained.

GC Securities acted as sole bookrunner for the Queen Street XII Re catastrophe bond issue. GC Securities has now raised $790m of cat bond protection for Munich Re since 2011, acting on seven out of twelve Queen Street catastrophe bonds issued since that year.

Munich Re itself said today that the cat bond enables it to obtain relief for losses from qualifying catastrophe events with a statistical return period of between 30 and 50 years.

On the use of the IBRD note as collateral, Munich Re said that “the structure uses a medium-term note of the International Bank of Reconstruction and Development (IBRD) specifically structured and issued for this transaction.”

As a result the Queen Street XII Re cat bond pays investors a variable interest rate based on the risk premium, ofo 5.25% per annum, and the yield paid from the IBRD Note collateral investment.

Munich Re member of the board Thomas Blunck commented; “This transaction slightly increases the cover for natural catastrophe exposure and its diversification in our books at conditions which are at the same time attractive for investors.”

You can read all about the Queen Street XII Re dac catastrophe bond and every other cat bond transaction in the Artemis Deal Directory.

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