Munich Re Securitizes $80 Million for Europe Windstorm, U.S. Hurricanes

May 21, 2010

Munich Re has obtained cover for US hurricane and European windstorm risks amounting to US$ 80 million from special-purpose vehicle EOS Wind Ltd, which placed a catastrophe bond in the market.

“MEAG, Munich Re’s asset management company, came up with the innovative solution of setting up a US Treasury bill fund as collateral for the bond,” said the announcement.

The announcement made it clear that it had been “prepared for the purpose of public announcement of the issuance of the bonds referred to herein,” which have already been placed. It “does not constitute or form part of any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities in any jurisdiction.”

Munich Re set up the transaction. The bond was issued by special-purpose vehicle EOS Wind Ltd, which is registered in the Republic of Ireland. It “provides cover against extreme event losses with a statistical return period of around 70 years.”

Specifically the bond has a four year term. It consists of two tranches, described as follows: “Tranche A, for a total of US$ 50 million, covers US hurricane risks only and pays interest for the risk at 6.80 percent. Tranche B, which totals US$ 30 million and covers US hurricane and European windstorm risks, pays 6.50 percent interest for the risk. Both tranches are rated Ba3 by Moody’s rating agency.

“As well as the interest for the risk, investors will also receive variable-rate interest paid from the US Treasury bill fund created by MEAG specifically to collateralize this catastrophe bond. It carries Standard & Poor’s top ‘AAAmG’ rating.”

Risk Management Solutions provided the risk modeling for the issue.”US hurricane losses will be quantified on the basis of a market-loss trigger prepared by Property Claim Services (PCS),” Munich Re explained. “European windstorm losses will be quantified using RMS’s PARADEX parametric index.”

Board member Thomas Blunck commented: “In these turbulent times, catastrophe bonds are a very interesting option for institutional investors, since they are not correlated with financial market risks and thus offer diversification benefits. The fact that spreads are back to normal makes placing risks in the capital market an attractive proposition. 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. Furthermore, this is a solution that we also offer to our clients.”

Source: Munich Re

Was this article valuable?

Here are more articles you may enjoy.