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Alternative reinsurance capital hit $64B, up 28% again in 2014: Aon Benfield

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The amount of alternative reinsurance capital in the global reinsurance market rose by 28% again in 2014, finishing the year with $64 billion of alternative or ILS capital deployed and outpacing the growth rate of traditional reinsurance capital significantly.

According to the latest edition of reinsurance broker Aon Benfield’s Aggregate report, which looks at reinsurer capital and trends as well as a deeper analysis of the financial results of 31 major reinsurers, this is the second consecutive year that alternative capital has grown by 28%.

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‘Fundamental change’ expected in reinsurance over next 10 years

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The insurance and reinsurance market is facing a fundamental change to its business structure over the next 10 years as the capital markets continues to exert influence over the sector, according to speakers at the recent SIFMA IRLS event held in New York.

Speakers at the SIFMA Insurance and Risk Linked Securities (IRLS) 2015 conference discussed the market environment and how change seems to have been accelerating in recent years, as the capital markets and insurance-linked securities become more of a feature in the insurance and reinsurance market.

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European CEO: Bermuda becomes prime location for investors – Ross Webber, CEO Bermuda Business Development Agency

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After successfully marketing itself in North America as a prime asset location with investor-friendly regulation, Bermuda is keen to achieve similar success in Europe

Having long been a global reinsurance industry powerhouse with a vibrant financial services sector, Bermuda is increasingly catching the attention of asset managers, investors and trust companies seeking to capitalise on the mid-Atlantic jurisdiction’s advantages. Innovative legislative and regulatory developments, implemented over the past few years, have invigorated the high-net-worth client and asset management industries, and made the island an even more attractive place to establish family trusts, limited partnerships, private equity, hedge funds and mutual funds.

Entropics to distribute cat bond fund through Avanza Bank

ORIGINAL PUBLICATION HERE

Entropics Asset Management AB, the first Swedish insurance-linked securities (ILS) and catastrophe bond fund manager, has signed a distribution agreement for its catastrophe bond fund’s retail share class with Avanza Bank.

Avanza Bank, a Swedish online bank with 130,000 customers and savings under management totaling SEK 140 billion (approximately $16.5 billion), is the largest online bank and stock broker in Sweden.

Avanza is the second retail distributor that Entropics has signed up with. Earlier this month the asset manager announced that its SEF Entropics Cat Bond Fund, the catastrophe bond focused investment strategy to be launched in the Scandinavian region, was available to retail investors through Swedish online bank Nordnet.

Collateralized reinsurer Oxbridge shows non-traditional asset strategy

ORIGINAL PUBLICATION HERE

Fully collateralized reinsurance company Oxbridge Re has reported a good first year’s results thanks to zero losses and a surprisingly good investment return that perhaps hints at the non-traditional, or even hedge fund reinsurer like, nature of its investment strategy.

Oxbridge Re, which IPO’d in 2014 and underwrites Gulf Coast property catastrophe risks, reported a combined ratio of just 32% for 2014, which is just expenses as the reinsurer suffered no losses at all during the underwriting year. This is likely helped by the fact it only writes coastal business that is largely exposed to named storms and hurricanes.

The reinsurer reported net income of $4m, on gross premiums written of $14.3m and premiums earned of $4.8m. All the numbers are up significantly on the 2013 period, helped by Oxbridge Re increasing its access to and the size of the reinsurance contracts it underwrites.

What’s perhaps most interesting is the investment income, which Oxbridge reports as $740,000 for 2014, consisting of $641,000 of investment gains and $99,000 of investment income. The firm began investing in fixed-maturity and equity securities in August 2014, which isn’t that long ago.

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Persistent patterns responsible for extreme weather-related losses: Munich Re

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Some of the most damaging and costliest natural catastrophes over the last few years have been caused by unwavering, or persistent, extreme weather conditions, according to research by reinsurance giant Munich Re.

Munich Re’s latest “Topics Geo 2014” publication, “Risk aggravated by persistent extreme weather conditions,” looks at the global financial and social impact of stationary weather trends and how they appear to be causing billions of dollars of damage and ultimately insurance industry losses.

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Naivety in the ILS space must be avoided

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There is a question mark as to just how well informed the capital market investors now entering the reinsurance space are, and it is an issue that divides opinion, with many claiming the market will truly know only after a big loss.

As Larry Richardson, senior vice president at Arch Capital Markets, pointed out, the vast majority of alternative capital is lucky to have entered the property cat market during a run of benign weather years during which industry cat losses have been well below modelled levels.

“This has led many investors to expect high profits and that a given investment will roll from one year to the next, like purchasing a series of short-term bonds,” he said.

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RMS releases global tsunami risk study

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Catastrophe risk management firm RMS has released a global tsunami risk study, four years after the Tohoku Earthquake. 

The study identifies more than 20 subduction zones worldwide capable of generating a giant earthquake and tsunami – similar in scale to the March 11, 2011, Tohoku, Japan event.

The new study, which uses the newly released RMS global tsunami scenario catalogue, reveals many coastal populations, industrial clusters, ports and vacation resorts at risk from this underestimated tsunami threat.

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Catastrophe model gaps an opportunity for reinsurance and ILS: Karen Clark

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For those in management tasked with risk analysis, risk strategy implementation and long-term views of risk, the probable maximum loss (PML) “is not a useful number,” stressed Karen Clark during a speech at the SIFMA event in the U.S. last week.

The original founder of AIR Worldwide and now Chief Executive Officer (CEO) at Karen Clark & Company (KCC), Karen Clark, took the opportunity to address issues with catastrophe modelling and the use of the PML and exceedance probability (EP) curve, during a speech to attendees of the SIFMA IRLS 2015 event, in New York.

“The PMLs, in particular, are highly volatile. Even for U.S. hurricane where we have the most data and the least uncertainty, those numbers can change by multiples with one model update,” explained Clark.

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Third-party & ILS capital to more than double to $150B by 2020: Millette

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As the pace of change in the reinsurance market accelerates, there is an expectation that the amount of capital seeking direct access to insurance and reinsurance risks from third-party investors and institutions will more than double to $150 billion by 2020.

Speaking at the SIFMA Insurance and Risk Linked Securities (IRLS) 2015 conference held in New York last week, Michael Millette, who was with Goldman Sachs at the time of speaking but has now left the firm, discussed his views on where insurance-linked securities (ILS), hedge fund reinsurers and the capital markets direct participation in re/insurance was heading over the next five years.