October 4th, 2011

Catastrophe Bond Market Diversification

Posted at 1:00 AM ET

In a break from the historical precedent, strong demand for diversifying peril-exposed transactions is contributing to a more active than usual third quarter for catastrophe bond issuance. Munich Re closed its USD150 million European windstorm bond on July 28 (with GC Securities* as sole bookrunner) with strong execution. The 1.95 percent expected loss transaction was priced at Treasury Money Market (TMM) + 4.75 percent (the initial price guidance was TMM + 5.25 percent to + 5.75 percent) and was concurrently upsized 200 percent from USD50 million. Embarcadero Re, a USD150 million transaction that provides the California Earthquake Authority (CEA) with earthquake protection, closed on August 1 and was reportedly over-subscribed. Subsequent CEA-sponsored transactions are expected in the future. Additionally, the EUR150 million Pylon II two tranche transaction that protects French utility company Electricité Réseau Distribution France against French windstorms closed on August 11. This transaction was also reportedly oversubscribed.

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* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

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