Reinsurer Munich Re said last Monday that it privately placed 110 million ($129 million) of risk-linked securities to provide protection against severe Western European windstorms.
BNP Paribas acted as lead manager on the deal and Risk Management Solutions modeled the underlying risk. Munich American Capital Markets, the capital markets unit of Munich Re, worked with BNP Paribas in structuring and managing the transaction. The bonds have a coupon of 475 basis points over three-month EURIBOR.
"This transaction complements our existing retrocession program for one of the peak natural catastrophe exposures and improves capital protection through collateralization at economically favorable terms," said Munich Re management board member Thomas Blunck, who is responsible for retrocession and capital markets solutions.
Munich Re may recover claims payments in the case of a one-in-a-hundred-year windstorm event in Western Europe (the U.K. up to and including 55 degrees latitude north of the equator, continental France, Belgium, the Netherlands and Germany). The cat bonds, called Aiolos after the Greek god of the winds, are rated BB+' - the standard rating for catastrophe bonds - by Standard & Poor's. The current bonds cover Western European windstorm risk in a similar way to the bonds Munich Re launched in 2000 dubbed PRIME Capital, which expired in 2003. Those bonds also used the concept of parametric triggers but a spokesman for the reinsurer said that the bonds issued on Monday had triggers based on a wind speed with a term that covers almost four full windstorm seasons that stretches from Nov. 18, 2005 to March 31,2009.
The company spokesman added that while Munich Re plans to continue developing capital markets solution for the risk insurance management, there were no immediate plans to have new bonds issued in the short-term. "We will continue to watch the market and determine if it's economically okay for us," he said.
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