Munich Re Issues $128.7 Million Windstorm Cat Bonds

November 28, 2005

Cat bonds seem to be enjoying something of a revival in Europe, largely as a response to increased windstorm and flood losses, as well as the passage of Hurricane Katrina. Munich Re recently increased its commitment to risk management through the securities markets, as it announced that it would place €110 million ($128.7 million) worth of catastrophe bonds covering Western European windstorms in the capital markets

Dr. Thomas Blunck, member of the Munich Re Board of Management and responsible for retrocession and capital markets solutions, commented: “This transaction complements our existing retrocession programme for one of the peak nat cat exposures and improves capital protection through collateralisation at economically favourable terms.”

The reinsurer’s announcement noted that “Munich Re entered the insurance securitisation market for its own purposes five years ago with PRIME Capital, also using the concept of parametric triggers. The current bonds cover Western European windstorm risk in a similar way to the bonds Munich Re launched in 2000, which expired in 2003.Munich Re is also supporting its clients in developing capital market solutions for the management of insurance risks.”

The bulletin also gave the following details: “BNP Paribas, as sole bookrunner, has placed the deal with capital market investors. Risk Management Solutions modeled the underlying risk. Munich American Capital Markets, the capital markets unit of Munich Re, worked closely together with BNP Paribas in structuring and managing the transaction.

“The bonds have a coupon of 3-month EURIBOR plus 475 basis points, which corresponds to a seasonalised spread of 415 basis points over EURIBOR. Based on a wind-speed trigger and with a term from 18 November 2005 to 31 March 2009, the product covers almost four full windstorm seasons.

“Munich Re may recover claims payments in the case of a one-in-a-hundred-year windstorm event in Western Europe (the United Kingdom up to and including 55 degrees latitude north of the equator, continental France, Belgium, the Netherlands and Germany). The cat bonds, called Aiolos after the Greek god of the winds, are rated ‘BB+’ (the standard rating for catastrophe bonds) by Standard & Poor’s.”

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