German insurance company Versicherungskammer Bayern Versicherungsanstalt des oeffentlichen Rechts (VKB) has entered the catastrophe bond market for the first time, seeking €150 million in multi-risk reinsurance from capital markets through a King Max Re DAC 2023 transaction.
VKB is one of the ten largest insurance groups in Germany, owning the largest public sector insurance operation and one of the largest primary insurance franchises.
The cedant VKB Re, or Versicherungskammer Bayern Konzern-Rückversicherung Aktiengesellschaft, is a subsidiary of the VKB group, acting as an internal reinsurer and pooling certain group risks, making it an ideal company to take on the capital markets.
We are told that VKB is seeking €150 million in multi-risk reinsurance on a guaranteed basis with this first King Max Re catastrophe bond.
King Max Re DAC has been established in Ireland as a catastrophe bond issuer for VKB and a single tranche of bonds to be issued by King Max Re will be offered to catastrophe bond funds and investors, with the proceeds to be used to guarantee reinsurance. agreement between the issuer and VKB Re.
The proposed single tranche of notes will provide the insurance group with indemnification and per-event reinsurance coverage against losses due to earthquake, hail, flood and windstorm risks in Germany, over a period of three years starting January 1, 2024, according to our information.
The notes have an initial peg point of €900 million in losses and the cover would run out at €1.1 billion, giving them an initial peg probability of 0.95%, or an expected loss. initial of 0.81%.
We are told that price forecasts currently offer a spread of 4.25% to 5% for cat bond investors.
This is a simple compensation deal, but it is interesting to see a German sponsor come to market this year and not one of the large reinsurance companies based there.
Another first-time sponsor is also encouraging, while available spreads will provide price signals for European reinsurance renewals at 1/1.