Munich Re transfers natural catastrophe risks to the capital market
Munich Re has obtained cover for US hurricane and European windstorm risks amounting to US$ 80m 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.
The transaction was structured and arranged by Munich Re and issued by special-purpose vehicle EOS Wind Ltd, which is registered in the Republic of Ireland. The bond provides cover against extreme event losses with a statistical return period of around 70 years.
The issue has a term of four years and consists of two tranches. Tranche A, for a total of US$ 50m, covers US hurricane risks only and pays interest for the risk at 6.80%. Tranche B, which totals US$ 30m and covers US hurricane and European windstorm risks, pays 6.50% 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 collateralise this catastrophe bond. It carries Standard & Poor’s top AAAmG rating.
The risk modelling was undertaken by Risk Management Solutions (RMS). US hurricane losses will be quantified on the basis of a market-loss trigger prepared by Property Claim Services (PCS). European windstorm losses will be quantified using RMS’s PARADEX parametric index.
Board member Thomas Blunck: “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.”
Munich, 20 May 2010
This press release is prepared for the purpose of public announcement of the issuance of the bonds referred to herein (the "Bonds") and 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, nor shall it (or any part of it) or the fact of its distribution form the basis of, or be relied upon in connection with, or act as any inducement to enter into, any contract or commitment therefore.
All of the Bonds have been sold and this announcement is a matter of record only. The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or any state or foreign securities law and the issuer is not and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act").
The Bonds were offered and sold only to investors who are qualified institutional buyers in accordance with Rule 144A under the Securities Act and who, in the case of U.S. persons (as the term is defined in Regulation S under the Securities Act), are also qualified purchasers for purposes of Section 3(c)(7) of the Investment Company Act and may not be re-offered or re-sold in the United States except in compliance with all applicable transfer restrictions. Any purported transfer in violation of those restrictions will be null and void. In addition, the Bonds may be held only in certain permitted jurisdictions.
This press release contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.
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