Munich Re securitises a further US$ 150m of hurricane risks / Innovative investment possibility for investors
The securitisation relates to hurricanes in 26 eastern and southern US states and Washington D.C. causing a market loss in excess of US$ 35bn each (for the sake of comparison: Hurricane "Katrina" in 2005 caused an insured market loss of more than US$ 40bn). From the US$ 150m already deposited by investors, Munich Re will receive, in the risk period from 9 May 2007 to 31 December 2010, payments on the basis of this plan if and to the extent that the insured market loss exceeds US$ 35bn.
The transaction was prepared and carried out by Morgan Stanley together with Munich Re’s business unit Munich American Capital Markets. In view of the loss probability of approx. 4% on the basis of the risk modelling prepared by Applied Insurance Research (AIR), the securities were given a B rating by Standard & Poor’s. The spread comes to 15.25% p.a. above the three-month Libor. This is the largest catastrophe bond ever to be placed on the market in a comparable risk category. The bond offered by Carillon Ltd. triggered considerable demand and has been subscribed to by institutional investors around the world.
Carillon Ltd., which is based in the Cayman Islands, is a special purpose vehicle providing a so-called "shelf" structure, by which hurricane bonds can be continually issued; thereby allowing Munich Re to access the capital market in a speedy and cost-effective manner. As a result, Munich Re currently has at its disposal hurricane covers amounting to approx. US$ 200m for market losses of various sizes.
Blunck: "A hurricane like Katrina can happen at any time, but the next one would have less impact on us. In view of the return period of one in 25 years, the notable Carillon transaction has contributed to relieving the capital commitment for the Group."
The market for catastrophe bonds has grown considerably within the last few years. In 2006, the volume of outstanding catastrophe bonds amounted to US$ 15bn with new issuances totalling US$ 5bn.
Through the creation of its Risk Trading Unit last year, Munich Re makes active use of securitisations for its own risk management and helps its clients transfer insurance risks to the capital markets.
signed Dr. Blunck signed Dr. Lawrence
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