LONDON, Nov 2 (Reuters) - Munich Re has transferred $75 million of its own U.S. hurricane and European windstorm risks to the capital markets by placing a catastrophe bond with international investors, it said on Tuesday.
Insurers and reinsurers use catastrophe bonds to transfer to capital market investors major risks on their books, such as for storms and earthquakes, freeing up capital to underwrite new insurance business.
“With this bond, Munich Re obtains relief for losses from extreme events with a combined statistical return period of around 35 years,” the world’s biggest reinsurer said in a statement.
Munich Re acquired coverage for the risks from Queen Street V Re Ltd, a Bermuda-based special purpose insurer, which then placed $75 million worth of principal-at-risk notes with a diversified group of international investors, including hedge funds, insurers and reinsurers.
The single $75 million tranche of notes was originally marketed with a pricing guidance of 9.00 percent to 9.75 percent above the collateral money market fund return.
The transaction finally priced at below the lower end of that range, at 8.60 percent, said one UK-based investor with knowledge of the deal.
An industry loss index trigger will be used to determine any potential losses from either of the two catastrophe types. Loss aggregator Property Claim Services (PCS) will determine any market losses from U.S. hurricanes, while Perils AG will assess losses from European windstorms. Risk modeling for the bond will be done by AIR Worldwide.
This is the third time in 2012 that Munich Re has transferred storm risks to the capital markets through a Queen Street vehicle, which now provides the reinsurer with $250 million of coverage against U.S. hurricane and European windstorm.
Munich Re board member Thomas Blunck said Munich Re investor demand was high.
“Investors still appreciate the transparent risk/return profile and the diversifying effect from cat bonds that are virtually uncorrelated with trends on the capital markets,” Blunck said in a statement.
Munich Re transferred $552 million in risks to the capital markets in 2011, including $350 million for its own book in three transactions.
Cat bond issuance so far in 2012 has climbed to $4.8 billion, compared with $4.3 billion in 2011.
To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click here Editing by Hugh Lawson