Munich Re revisits non-US cat bond market

11/06/2009

Munich Re has announced a €50m catastrophe (cat) bond transferring European winter storm and Turkish earthquake risks to the capital markets, the first cat bond covering non-US risks to be issued in 2009.

Ianus Capital is intended to 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, 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.

Munich Re said that for the first time it 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 and guaranteed by the AAA-rated Federal Republic of Germany.

Thomas Blunck, member of Munich Re’s board of management said: "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.”

Blunck said this meant that 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.