Munich Re transfers earthquake risks to the capital markets for Japanese insurer Zenkyoren / Board member Thomas Blunck: "Investors continue to be receptive to securitised insurance risks."

2008/05/16

Reinsurance

Muteki Ltd., exempted company in the Cayman Islands, has transferred Japanese earthquake risks to the capital markets. The placement provides Munich Re with fully collateralized catastrophe protections for Japanese earthquake risks. Muteki Ltd. was established for the benefit of the largest Japanese mutual, Zenkyoren.

The securitisation gives Zenkyoren cover against losses in the event of devastating earthquakes in Japan. Munich Re acted as sole structurer of the transaction through which risks from catastrophic earthquake events in Japan are transferred from Zenkyoren to Munich Re and further transferred to Muteki which securitized the risks to the capital markets. The risk transfer is so designed that the protection level for Zenkyoren increases after the occurrence of moderate earthquakes that do not fully trigger the bond (so-called "drop down events"), thus accommodating the increased protection need of Zenkyoren after moderately severe events. Investors will in turn be rewarded with a higher risk spread ("step-up risk premium") in such a situation in order to avoid mark-to-market losses.

"With this transaction we are supporting a key client and, by using the tried and tested instrument of securitisation, creating additional capacity for earthquake covers in the Japanese market", said Ludger Arnoldussen, member of Munich Re’s Board of Management responsible for business in Germany, Asia Pacific and Africa.

The notes with a volume of US$ 300m were issued by Muteki Ltd; they have a term of three years and have been given a Ba2 rating by Moody’s. The risk spread payable to investors is 4.40 percentage points above the three-month Libor, while the additional step-up risk premium after a drop-down event is 3.5 percentage points. The Muteki programme structure allows Zenkyoren to efficiently access the capital markets for transferring earthquake risks and other natural perils through future issuances for an aggregate volume of up to US$ 1bn.

"The issue has once again demonstrated that, despite the ongoing credit crisis, investors are highly receptive to securitisations of insurance risks as they diversify their portfolio in an attractive way. Munich Re will, as announced, realise more such capital market solutions for clients and also securitise risks in its own book of business", noted Thomas Blunck, member of the Board of Management responsible for the Special and Financial Risks Division.

Just under 40% of the securities were placed with investors in the European Union and in Switzerland via the Munich Re subsidiary Munich Re Capital Markets. Aon Capital Markets acted as book runner for the transaction. AIR Worldwide Corporation performed the Risk Modelling and will act as Calculation Agent for the transaction.

Munich, 16 May 2008

Münchener Rückversicherungs-Gesellschaft

gez. Dr. Blunck           gez. Dr. Lawrence

The Munich Re Group operates worldwide, turning risk into value. In the financial year 2007, it achieved a profit of €3,937m, the highest since the company was founded in 1880, on premium income of approximately €37bn. The Group operates in all lines of business, with more than 38,000 employees at over 50 locations throughout the world and is characterised by particularly pronounced diversification, client focus and earnings stability. With premium income of around €21.5bn from reinsurance alone, it is one of the world's leading reinsurers. Its primary insurance operations are mainly concentrated in the ERGO Insurance Group. With premium income of over €17bn, ERGO is one of the largest insurance groups in Europe and Germany. It is the market leader in Europe in health and legal expenses insurance, and 34 million clients in 26 countries place their trust in the services and security it provides. The global investments of the Munich Re Group amounting to €176bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
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