Munich Re buys $75m cat bond

Munich Re has secured $75m of cover for US hurricanes and European windstorms through a catastrophe bond transaction.

The cover was provided by Bermuda-based special purpose insurer Queen Street V Re Limited, which has placed a $75m catastrophe bond in the capital markets.

The transaction was structured and arranged by Munich Re and the risk modelling was developed by AIR Worldwide. The catastrophe bond matures on 9 April 2015 and protects Munich Re against US and European windstorms with a return period of around 50 years.

For the purpose of the transaction, US hurricane losses will be quantified using country- and line-of-business-weighted market loss data and European windstorm losses using CREST-zone-weighted market loss data.

Market losses for US hurricane will be determined by claims data firm PCS (Property Claim Services) and for European windstorm by fellow loss data firm PERILS.

Queen Street V has placed the bond globally among a broadly diversified group of international investors mainly comprising investment funds and hedge funds, but also insurers and reinsurers.

“Munich Re adheres to its strategy of selectively using catastrophe bonds as a supplementary means of transferring peak risks from our own book,” said board member Thomas Blunck.

“The response by investors was positive despite a challenging market environment, with high spreads in other asset classes with comparable ratings,” Blunck added. “This shows that investors appreciate the diversifying effect from cat bonds that are virtually uncorrelated with trends on the capital markets as such.”