Munich Re transfer US hurricane and European windstorm risks to the capital markets

Munich Re has acquired coverage for US hurricane and European windstorm risks with a total volume of US$ 100m from the special-purpose vehicle Queen Street IV Capital Limited, which in turn has placed a catastrophe bond for this amount in the capital markets.

The transaction was structured and arranged by Munich Re. The catastrophe bond matures on 9 April 2015 and was issued by special-purpose vehicle Queen Street IV Capital Limited, which is registered in the Republic of Ireland, while the risk modelling was developed by AIR Worldwide. With this bond, Munich Re obtains relief for losses from extreme events with a combined statistical return period of around 50 years. The bond has received a rating of BB- (sf) from Standard & Poor’s, and the risk premium is 7.50%.

In addition to the risk premium, investors will receive variable-rate interest paid from a US Money Market fund which collateralises this catastrophe bond. It carries Standard & Poor’s top AAAm rating. Loss events will be quantified on the basis of weighted market loss triggers. Market losses will be determined for US hurricanes by PCS (Property Claim Services) and for European windstorm by PERILS AG (Zurich).

Queen Street IV has placed the bond globally among a broadly diversified group of international investors mainly comprising investment funds and hedge funds, but also insurers and reinsurers. It is the third placement from the Queen Street programme this year.

Board member Thomas Blunck: "Catastrophe bonds continue to be a supplementary means of transferring risk, which we use selectively. The positive response by investors shows the interest of the capital markets in the transparent and non-correlated insurance risk."