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Munich Re securitises a further US$ 150m of hurricane risks / Innovative investment possibility for investors

2007/05/08

Reinsurance

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    Munich Re has successfully transferred parts of its hurricane exposure in the US to the capital markets. Thus, the company offers investors an attractive alternative investment vehicle. "The need for alternative investments is rising. At the same time, we can significantly reduce our exposure towards extreme hurricane events and also improve our diversification of risks as well as the efficient use of capital within the Group", says Thomas Blunck, member of the Board of Management in whose division capital market securitisations are devised and implemented for the purposes of risk management.

    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.

    Münchener Rückversicherungs-Gesellschaft
    signed Dr. Blunck           signed Dr. Lawrence
    The Munich Re Group operates worldwide, turning risk into value. In the financial year 2006, it achieved a profit of €3,536m, the highest in its 126-year corporate history. In 2006, its premium income amounted to approximately €37bn and its investments to around €177bn. The Group is characterised by particularly pronounced diversification, client focus and earnings stability. It has approximately 37,000 employees in over 50 locations throughout the world and operates in all lines of insurance. With premium income of around €22bn in the year 2006 from reinsurance alone, it is one of the world's leading reinsurers. Its primary insurance operations are mainly concentrated in the ERGO Insurance Group; it is the second-largest provider in the German primary insurance market and a leading player in the European insurance market in health insurance and legal expenses cover. The ERGO Insurance Group is present in 25 countries, and 33 million clients place their trust in the services, competence and security it provides.
    Disclaimer
    This media information contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of Munich Re. The company assumes no liability to update these forward-looking statements or to make them conform to future events or developments.

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