Munich Re further diversifies risk management instruments: €110m catastrophe bonds covering Western European windstorms placed in the capital markets
Munich Reinsurance Company today announced the private placement of €110m of risk-linked securities to provide immediate protection against severe Western European windstorms. Thus Munich Re continues to use alternative instruments for its risk management.
Dr. Thomas Blunck, member of the Munich Re Board of Management and responsible for retrocession and capital markets solutions: "This transaction complements our existing retrocession programme for one of the peak nat cat exposures and improves capital protection through collateralisation at economically favourable terms."
BNP Paribas, as sole bookrunner, has placed the deal with capital market investors. Risk Management Solutions modelled the underlying risk. Munich American Capital Markets, the capital markets unit of Munich Re, worked closely together with BNP Paribas in structuring and managing the transaction. The bonds have a coupon of 3-month EURIBOR plus 475 basis points, which corresponds to a seasonalised spread of 415 basis points over EURIBOR. Based on a wind-speed trigger and with a term from 18 November 2005 to 31 March 2009, the product covers almost four full windstorm seasons. Munich Re may recover claims payments in the case of a one-in-a-hundred-year windstorm event in Western Europe (the United Kingdom up to and including 55 degrees latitude north of the equator, continental France, Belgium, the Netherlands and Germany). The cat bonds, called Aiolos after the Greek god of the winds, are rated BB+ (the standard rating for catastrophe bonds) by Standard & Poor's.
Munich Re entered the insurance securitisation market for its own purposes five years ago with PRIME Capital, also using the concept of parametric triggers. The current bonds cover Western European windstorm risk in a similar way to the bonds Munich Re launched in 2000, which expired in 2003.
Munich Re is also supporting its clients in developing capital market solutions for the management of insurance risks.
signed Blunck signed Küppers
The Munich Re Group
The Munich Re Group operates worldwide, turning risk into value. In the business year 2004, it achieved a profit of €1,833m, the highest in its 125-year corporate history. Its premium income amounted to approximately €38bn and its investments to around €178bn. The Group is characterised by particularly pronounced diversification. It has more than 40,000 employees in 60 countries throughout the world and operates in all lines of insurance. It is both one of the world's leading reinsurers and, through the ERGO Insurance Group, the second-largest provider in the German primary insurance market.
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