The bond was structured and arranged by Munich Re and issued to investors by Republic of Ireland-based special-purpose vehicle EOS Wind. MEAG, Munich Re’s asset management arm, set up a US Treasury bill fund to collateralize the bond. The bond provides cover against extreme event losses with a statistical return period of around 70 years.
Tranche A of the bond provides $50m of cover against US hurricane risks only and pays interest of 6.80%. Tranche B provides $30m of protection against both US hurricane and European windstorm risks and pays interest of 6.50%. Both tranches are rated Ba3 by Moody’s.
In addition to the interest payments on the risk, investors will also receive variable-rate interest from the US Treasury bill fund created by MEAG. The fund is rated AAAmG by Standard & Poor’s.
Risk Management Solutions (RMS) modelled the bond’s risk. US hurricane losses will be quantified based on a market-loss trigger prepared by Property Claim Services. European windstorm losses will be quantified using RMS’s PARADEX parametric index.
“The fact that spreads are back to normal makes placing risks in the capital market an attractive proposition,” said Munich Re board member Thomas Blunck in a statement. “We see the growing ILS market as an addition to traditional risk transfer. We are maintaining our course of transferring risks to the capital market when financially expedient, and innovative product developments – in this case using MEAG’s US Treasury bill fund – are very important to us.”