First cat bond covering non-US risks to be issued after the collapse of Lehman
Munich Re confirmed that it has issued a €50m catastrophe bond transferring European winter storm and Turkish earthquake risks to the capital markets.
The securities, rated B2 by Moody’s, have a three-year term and offer a spread of 900 basis points over three-month Euribor. They cover windstorm risks in the UK, Ireland, France, Belgium, the Netherlands, Denmark and Germany.
See also: Munich Res 50m cat bond
The second of the bond’s risk components, the transfer of Earthquake risks in Turkey, is a transaction on behalf of one of Munich Re’s clients, the Turkish Catastrophe Insurance Pool (TCIP).
"Ianus Capital" is the first catastrophe bond covering non-US risks to be issued in 2009, following a period of inactivity caused by the collapse of Lehman Brothers.
For the first time, Munich Re has combined risk transfer on behalf of a client with the placement of risks from its own book of business.
The funds will be invested in paper issued by the KfW banking group. KfW bonds are guaranteed by the AAA-rated Federal Republic of Germany. Munich Re said: ‘This minimises the credit and counterparty default risk inherent in some of the previous market transactions.’
Member of the Board of Management Thomas Blunck commented: ‘The objective of the current transaction was to obtain cover in the newly revived catastrophe bond market for a period of three years at attractive conditions. It was important to us to place this coverage at a relatively low price with investors having a long-term interest. These are investors who calculate catastrophe bond risk diversification within their own catastrophe bond portfolio and are consequently able to operate with lower spreads. This, in turn, means clients are more willing to transfer their risks to the capital markets as well, so that in the long term the tradeable volume is increased and a liquid and efficient market emerges.’