25 January 2001

Press Release

US$ 300m catastrophe bonds for US and European peak risks placed in the capital markets / Munich Re diversifies its own risk management

Munich Reinsurance Company today announced the successful private placement of a total of US$ 300m of risk-linked securities, the largest ever to provide protection against different types of natural catastrophe event: US hurricane, Californian earthquake and European windstorm. An innovative parametric trigger structure for a package of three perils was chosen to enhance investor transparency and objectivity. With this transaction Munich Re tested and entered the capital markets for the first time as a sponsor. The placement provides Munich Re with additional relief in the event of a 'super cat' in areas with particularly high insurance exposure.

Munich Re Capital Markets was responsible for structuring and project management. The risk modelling firm Risk Management Solutions (RMS) provided the risk analysis. Goldman Sachs, Lehman Brothers and American Re Securities Corporation placed these unique bonds, with Goldman Sachs acting as bookrunner.

In 1999, natural catastrophe insurance produced substantial negative results; in 2000 natural catastrophe activity increased, although by chance with less impact on the insurance industry. The transaction represents an important step for Munich Re to obtain fully collateralized protection against significant low-frequency, high-severity natural perils in the US and Europe. The bonds provide Munich Re with an additional risk management tool and fixed conditions for the three-year term of the transaction. Manfred Seitz, Member of the Executive Management of Munich Re and Head of its Alternative Risk Transfer Division, stated: "The parametric trigger structure of this transaction ensures utmost objectivity. The concept is in line with our express interest to facilitate modern risk management concepts, diversify our retrocession and secure stable, multi-year coverage."

Risk modelling and analytical services for this transaction were provided by RMS using its proprietary hurricane, earthquake and European windstorm models. RMS worked with Munich Re to create five new parametric triggers by which any losses to the bonds are directly linked to parameters published by government geological and meteorological agencies.

For the Greater Miami and Greater New York areas, the triggers are based on the central pressure of hurricanes making landfall along specified sections of coastline. For the San Francisco Bay and Greater Los Angeles areas, the triggers are based on earthquake magnitudes within a series of geographical 'boxes' surrounding sources of major tectonic activity. The European windstorm trigger is a weighted index calculated from windspeeds measured at 600 stations across five countries in Western Europe, also capturing regional variation of industry exposure and vulnerability.

Hemant Shah, president and CEO of RMS, commented: "We are delighted to have been able to assist Munich Re with this innovative transaction. These are the first parametric catastrophe bonds issued for the US and Europe, marking a major advance in the development of the catastrophe securitization market."

The transaction represents the largest catastrophe securitization issued in the last two years and the largest reinsurance catastrophe securitization ever. "The parametric triggers were designed to serve as benchmarks for risk transfer to capital markets", commented Manfred Seitz. "We expect them to become a standard feature, facilitating greater standardization, acceptance and liquidity in the catastrophe securitization market. We would have liked to place an even larger amount; however, the capacity available in the capital markets for catastrophe risks is limited." The securities have been placed roughly equally amongst a broad range of investors from the insurance sector and other capital market investors, such as institutional money managers, mutual funds, hedge funds and banks. Over 80% of the securities were placed in the North American continent.

Both issues were rated by S&P, Moody's and Fitch and have initial maturities of three years, with the risk periods starting on 1st January 2001. The notes issued by PRIME Capital CalQuake & EuroWind Ltd. were priced at 750 basis points over LIBOR. The notes issued by PRIME Capital Hurricane Ltd. were priced at 650 basis points over LIBOR.

Munich Re (www.munichre.com) is the world's leading reinsurance group currently servicing more than 5,000 companies in around 150 countries. Munich Re enjoys the top ratings from the major rating companies (S&P, Moody's, A.M. Best). Munich Re Capital Markets is the alternative risk transfer unit of Munich Re which provides structuring and project management services for financial and capital market products to external clients and internally.

The distribution of the securities referred to in this press release has been completed and therefore this press release is as a matter of record only. This press release does not constitute an offer of or an invitation to purchase any securities.

This press release is not an offer of securities for sale in the United States and the securities discussed herein may not be offered for sale in the United States absent registration with the United States Securities and Exchange Commission or an exemption from such registration.