Munich Re transfers windstorm and earthquake risks to the capital markets
Munich Re has issued a €50m catastrophe bond transferring European winter storm and Turkish earthquake risks to the capital markets. This will provide relief in the event of extreme event losses with a statistical return period of 75 years per each peril.
The securities, rated B2 by Moody’s, have a three-year term and offer a spread of 900 basis points over three-month Euribor. They cover windstorm risks in the UK, Ireland, France, Belgium, the Netherlands, Denmark and Germany. The second of the bond’s risk components, the transfer of Earthquake risks in Turkey, is a transaction on behalf of a client, the Turkish Catastrophe Insurance Pool (TCIP). The risk modelling was developed by the modelling firm EQECAT, while the transaction was structured and arranged by Munich Re.
"Ianus Capital" is the first catastrophe bond covering non-US risks to be issued in 2009, following a period of inactivity caused by the collapse of Lehman Brothers. For the first time, Munich Re has combined risk transfer on behalf of a client with the placement of risks from its own book of business. The investors’ paid-up funds will be invested in puttable floating rate notes issued by the KfW banking group. KfW bonds are guaranteed by the AAA-rated Federal Republic of Germany. This minimises the credit and counterparty default risk inherent in some of the previous market transactions.
At the time when it was more difficult to float new issues and when interesting packages were being offered in the secondary market, Munich Re itself actively invested in catastrophe bonds. Member of the Board of Management Thomas Blunck: "In this way, we topped up our risk budgets and achieved attractive returns. The objective of the current transaction was to obtain cover in the newly revived catastrophe bond market for a period of three years at attractive conditions. It was important to us to place this coverage at a relatively low price with investors having a long-term interest. These are investors who calculate catastrophe bond risk diversification within their own catastrophe bond portfolio and are consequently able to operate with lower spreads. This, in turn, means clients are more willing to transfer their risks to the capital markets as well, so that in the long term the tradeable volume is increased and a liquid and efficient market emerges."
Munich, 9 June 2009
Aktiengesellschaft in München
The Munich Re Group operates worldwide, turning risk into value. In the financial year 2008, it achieved a profit of €1,528m on premium income of around €38bn. The Group operates in all lines of business, with around 44,000 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 €22bn from reinsurance alone, it is one of the world's leading reinsurers. The 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 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, the Munich Re Group pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand. The global investments of the Munich Re Group amounting to €175bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
This press release is prepared for the purpose of public announcement of the issuance of the bonds referred to herein (the "Bonds") and does not constitute or form part of any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities in any jurisdiction, nor shall it (or any part of it) or the fact of its distribution form the basis of, or be relied upon in connection with, or act as any inducement to enter into, any contract or commitment therefore.
All of the Bonds have been sold and this announcement is a matter of record only. The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or any state or foreign securities law and the issuer is not and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act").
The Bonds were offered and sold only to investors who are qualified institutional buyers in accordance with Rule 144A under the Securities Act and who, in the case of U.S. persons (as the term is defined in Regulation S under the Securities Act), are also qualified purchasers for purposes of Section 3(c)(7) of the Investment Company Act and may not be re-offered or re-sold in the United States except in compliance with all applicable transfer restrictions. Any purported transfer in violation of those restrictions will be null and void. In addition, the Bonds may be held only in certain permitted jurisdictions.
This press release 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 our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.