Munich Re Places $190 Million Calif. Quake Cat Bond for Zurich

December 22, 2006

Munich Re announced that it has transferred earthquake risks in California to the capital markets for subsidiaries of the Zurich Financial Services Group in cooperation with Aon Capital Markets, providing coverage through a $190 million catastrophe bond placement.

Munich Re noted that the “issuer of the bond is Lakeside Re Ltd., a special purpose reinsurance company domiciled in the Cayman Islands [commonly referred to as a ‘sidecar’], to which Munich Re has transferred the risks from a reinsurance treaty with Zurich American Insurance Company and its affiliates.” If large losses occur from a Calif. earthquake the $190 million “will be available either in total or proportionately to cover the reinsurance for Zurich.”

The three-year bond has a floating coupon of 6.5 percent over three-month LIBOR [London Interbank Offering Rate] and is rated “BB+” by Standard & Poor’s. Munich Re said its Risk Trading Unit “worked very closely with Aon Capital Markets, which was responsible for the placement,” while Newark Calif.-based Risk Management Solutions modeled the underlying risk.

Dr. Thomas Blunck, member of the Munich Re Board of Management in charge of Risk Trading, commented: “With this transaction, Munich Re is again supporting a key client in specifically developing capital market solutions for the management of its peak risks.”

The bulletin also noted: “The market for natural catastrophe bonds has grown significantly since Hurricane Katrina; the total volume issued worldwide has amounted to around $4.4 billion so far in 2006. To date Munich Re has deployed catastrophe bonds for its own risk management, while on various occasions also supporting clients in developing capital market solutions to manage their own insurance risks. Munich Re was first involved in such a solution in 1998 when it helped protect the Yasuda Fire & Marine Insurance Company against risks from typhoon losses in Japan.”

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