Munich Re launches cat bond for North Carolina associations

LONDON, March 7 Thu Mar 7, 2013 11:49am EST

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LONDON, March 7 (Reuters) - Munich Re is marketing a new catastrophe bond through a special purpose vehicle set up to protect two North Carolina underwriting associations against $200 million of hurricane losses in the region.

Standard & Poor's assigned a B+ rating on the Series 2013-1 notes issued by Bermuda-based Tar Heel Re Ltd to cover the North Carolina Insurance Underwriting Association (NCIUA) and the North Carolina Joint Underwriting Association (NCJUA), the credit rating agency said in a statement.

So-called "cat bonds" are used by the insurance industry to transfer extreme risks, such as those for earthquakes or hurricanes, to financial market investors, who receive a handsome yield in return for agreeing to cover damages they consider unlikely.

Munich Reinsurance America, a unit of Munich Re which is the world's biggest reinsurer, will purchase reinsurance from Tar Heel Re, and transform the proceeds of the bond issue into a reinsurance agreement for the two North Carolina Associations.

This is the first time a new transaction has come to market using the U.S. hurricane model from risk analysis firm RMS after the company fell out of favour with the cat bond sector when it made changes to its expected loss estimates in 2011.

The alterations led to higher-than-expected losses - making the risk of a U.S. hurricane significantly more expensive for some reinsurers and insurers.

This is the fourth cat bond issued by Munich Re to cover the NCJUA and the NCIUA from North Carolina hurricanes, but the first under the Tar Heel Re vehicle.

The new deal will replace expiring cover from another cat bond deal - also under the Johnston Re programme - that will expire in May this year.

Notes issued via Tar Heel Re adds another layer of cover to the 2011 transaction, Johnston Re - a $202 million cat bond programme issued by Munich Re, which is due to mature in 2014.

The NCJUA and the NCIUA first sponsored a cat bond in 2009 with a $200 million transaction with Swiss Re's Parkton Re vehicle.

- To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click here (Reporting by Sarah Mortimer; Editing by Susan Fenton)

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