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26 June 2014ILS

Does failure of Munich Re bond suggest a turn in ILS market?

Munich Re has been obliged to withdraw its Queen Street X Re cat bond following a lack of investor demand at the pricing set by the re/insurer.

The bond would have provided retrocessional protection from US hurricanes and Australian cyclones, but it was apparent that Munich Re would not achieve the transaction size it anticipated and the re/insurer was obliged to withdraw the bond.

Its failure suggests that ILS investors are unwilling to chase cat bond pricing further down, with returns having come under increasing pressure in recent months.

The disappointment of the latest of Munich Re’s cat bonds may spell a possible turn in the ILS market and will likely create some relief among third party and traditional re/insurers who have seen margins compressed by the flood of convergence capital.

However, there are some indications that the timing of the deal was poor, with the US hurricane season about to start and appetite likely to have been dented by existing positions.