Munich Re has again utilised the capital markets to acquire coverage for natural catastrophe risks - this time for US hurricane and Australian cyclone risks with a total volume of US$75m via the reinsurance vehicle Queen Street VIII Re Limited, created to facilitate the seventh issuance of a catastrophe bond in the Queen Street series since 2011. It is the first time in the Queen Street series that Australian cyclone risks have been transferred to the capital markets. Queen Street VIII is currently the only outstanding bond covering this peril.
The transaction is comparable to previous Queen Street transactions and was structured and arranged by Munich Re. The catastrophe bond matures on 8 June 2016 and was issued by Queen Street VIII Re Limited, a Bermuda registered special purpose insurer. The risk modelling was developed by AIR Worldwide. With this bond, Munich Re obtains relief for losses from extreme events with a statistical return period between 65 and 80 years per event. Loss events will be quantified on the basis of county- and line-of-business-weighted market losses determined by PCS (Property Claim Services) with respect to US hurricanes, and on the basis of modelled losses calculated by AIR Worldwide in respect of Australian cyclones. Exposures in the territory of Queensland contribute the majority of the initial expected losses for Australia cyclone events.
The bond has a variable rate of interest based on the risk premium and yield paid from a US money market fund collateralising the catastrophe bond. The cat bond investors will receive a risk premium of 6.50% per annum. Queen Street VIII Re Limited has placed the bond globally among a broadly diversified group of international investors. In addition to this transaction, Munich Re has brought US$1.2bn to the capital markets for clients over the last six months.
Board member Thomas Blunck: 'Munich Re has again used the current market environment to acquire coverage for the peak risk US hurricane and included Australian cyclone risk for the first time for protection of our own book. The response by investors has been positive. Investors appreciate the transparent risk/return profile and the diversifying effect of Australian cyclone exposure.