Munich Re realises capital market solution for risks assumed from the Zurich Financial Services Group / Placement of a catastrophe bond with a volume of US$ 190m to cover the risk of earthquakes in California
Munich Re has transferred earthquake risks in California to the capital markets for subsidiaries of the Zurich Financial Services Group (Zurich); in cooperation with Aon Capital Markets, it has provided coverage through a US$ 190m catastrophe bond placement.
The issuer of the bond is Lakeside Re Ltd., a special purpose reinsurance company domiciled in the Cayman Islands, to which Munich Re has transferred the risks from a reinsurance treaty with Zurich American Insurance Company and its affiliates. In the event of an earthquake in California leading to large losses, the US$ 190m will be available either in total or proportionately to cover the reinsurance for Zurich.
The three-year bond has a floating coupon of 6.5% over three-month LIBOR and is rated BB+ by Standard & Poor’s. In structuring the transaction, Munich Re’s Risk Trading Unit worked very closely with Aon Capital Markets, which was responsible for the placement. Risk Management Solutions (Newark/USA) modelled the underlying risk.
Dr. Thomas Blunck, member of the Munich Re Board of Management in charge of Risk Trading: "With this transaction, Munich Re is again supporting a key client in specifically developing capital market solutions for the management of its peak risks."
The market for natural catastrophe bonds has grown significantly since Hurricane Katrina; the total volume issued worldwide has amounted to around US$ 4.4bn so far in 2006. To date Munich Re has deployed catastrophe bonds for its own risk management, while on various occasions also supporting clients in developing capital market solutions to manage their own insurance risks. Munich Re was first involved in such a solution in 1998 when it helped protect the Yasuda Fire & Marine Insurance Company against risks from typhoon losses in Japan.
signed Dr. Blunck signed Küppers
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