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Alternative capital and re/insurers’ can be best friends: Mike McGavick

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As the re/insurance industry looks for ways to navigate a testing market, innovation into emerging, underinsured risks can be a key avenue for growth, but to cover the exposures really threatening the industry alternative reinsurance capital is essential, says Mike McGavick.

Addressing an audience at the PwC hosted breakfast briefing event during the 2015 Monte Carlo Rendez-vous, XL Catlin Chief Executive Officer (CEO), Mike McGavick, reinforced views on the influx and permanence of third-party reinsurance capital and the opportunity this presents to the global re/insurance sector.

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Insurance Linked Securities and Bermuda

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The market for Insurance Linked Securities has proved very attractive for investors and insurers because they represent a unique asset or investment class – like riding the waves, the success of the investment is entirely uncorrelated with the general stock market.

One aspect of Insurance Linked Securities (ILS) is the reinsurance of high severity, low probability events known as catastrophe (CAT) bonds. CAT bonds include cover for natural disasters and other uncontrollable events. They account for around 40% of all ILS securities and can include, for example, insurance losses arising from hurricanes, tidal waves or earthquakes.

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Asia-Pacific needs ‘responsive’ disaster risk transfer instruments: ABAC

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The Asia-Pacific region is in need of greater access to disaster insurance and risk transfer instruments which can be responsive to actual catastrophe or weather conditions, ensuring a rapid payout can be made, helping to boost the regions resilience.

Mind the Gap sign (Source: Autoprotect)The importance of having access to post-disaster risk finance is becoming increasingly apparent in regions such as Asia-Pacific. As the call for countries to become more resilient to disasters and weather events grow louder, countries and regions are once again turning to insurance and risk transfer products, with a focus on those that can pay out rapidly.

Enter index insurance, parametric triggers, catastrophe bonds and similar structures, all risk transfer, insurance or reinsurance solutions that can be parameterised and designed to pay out capital just-in-time after an event occurs.

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Reinsurance M&A ‘mega deals’ an opportunity for ILS

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Increased merger and acquisition (M&A) activity, deal value and deal size during the first-half of 2015, highlights a return of the ‘mega deal’, but what implications might market consolidation have for alternative reinsurance capital and ILS participants?

According to rating agency A.M. Best the average deal value during the first-half of 2015 increased by a huge 290% from the same period in 2014, to a high of $21 billion.

Average deal size grew from $279 million during H1 2014 to $725 million in 2015, a rise of 160%. While the amount of deals taking place in the property/casualty insurance and reinsurance sectors rose by 73%, totalling 76 deals.

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Peru buys catastrophe insurance to protect farmers from El Niño losses

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The government of Peru has established a catastrophe insurance facility for the countries farmers, buying a private risk transfer contract to cover around 550,000 hectares of crops, aiming to cover losses up to around $156m.

El Seguro Agrario Catastrófico (SAC), or the Agricultural Catastrophe Insurance, will provide cover t eight Andean regions of Peru, across the 550,000 hectares of crops. Peru’s Minister of Agriculture Manuel Benites said that with a 55% chance of a strong El Niño this year, it was essential to put in place some protection for these regions farmers.

Peru can suffer from catastrophic rainfall and flooding during a strong El Niño, destroying crops and farmers livelihoods. The disruption to the local and regional economy makes having risk transfer in place, in order to finance recovery, is essential.

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London ILS work about innovation & leveling the playing field: Hearn

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The work being undertaken by the London Market Group (LMG) and HM Treasury to make London an attractive hub for insurance-linked securities (ILS) is all about ensuring that London remains at the forefront of innovation in insurance and reinsurance and that a level playing field exists.

Speaking this morning at the LMG Forum in London, Steve Hearn, Chair of the London Market Group, gave an update on some of the items being worked on by the LMG’s ILS focused industry task force and explained some of the rationale behind it.

London is targeting becoming a domicile for ILS vehicles and funds, Hearn explained, with much of the work underway being about leveling the playing field between London and other ILS domiciles.

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Alternative reinsurance capital & ILS to expand in LatAm: A.M. Best

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Latin America has some of the world’s lowest insurance penetration levels globally, a core opportunity for re/insurers. But for insurance-linked securities (ILS) and alternative reinsurance capital the road to meaningful inclusion will likely be longer, but it is expected.

Map of Latin AmericaSimilar to parts of the Asia-Pacific region Latin America, so Central and Southern countries, present a host of challenges and opportunities for local and global reinsurers, including the ILS community and other alternative risk transfer strategies that exist in today’s evolving reinsurance market.

Average insurance penetration rates across the Latin America region are roughly 3%, according to insurance and reinsurance ratings agency A.M. Best. A figure that is dangerously low considering the region’s high vulnerability to a host of natural perils, including flooding, earthquakes and volcanic eruption, to name but a few.

However, a lack of historical data surrounding the majority of high exposure risks in the area, and limited catastrophe modelling data and capabilities when compared with North America and Europe, is a factor hindering the growth potential for ILS players in the region.

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Re/insurance & ILS can turn protection gap failure into market success

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The protection gap – underinsurance in emerging and developing economies and the gap between economic and insurance losses – has been a hot topic for the world’s leading reinsurance companies and brokers at this year’s Monte Carlo Rendez-vous.

Mind the Gap sign (Source: Autoprotect)It’s the opportunity that is on every reinsurance CEO’s lips, as they seek to find a positive message to present to their shareholders and the watching media in this challenging underwriting and investment environment.

In a market that is faced with abundant and ongoing pressure, from excess capital, new entrants, the capital markets, reductions in buying, consolidation of reinsurer panels and difficult global financial market conditions, the reinsurance industry is trying to sound positive by focusing on the next big opportunity.

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Alternative reinsurance capital ‘Uberized’ re/insurance: Aon Benfield

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The influx of alternative capital in the global insurance and reinsurance landscape, from traditional and increasingly capital market sources has caused the sector to experience ‘Uberized’ supply competition, according to reinsurer Aon Benfield.

Referring to the remarkable growth of technology & transportation company Uber, Aon Benfield questions whether the insurance industry is the first sector to experience similar growth, in terms of “increased supply competition,” which it notes as a “potential definition” of the phrase, following the impacts of excess capacity in the global reinsurance sector.

Understanding Catastrophe Models

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This article originally appeared on InsNerds.comToday we have part two of our our series on Catastrophe Models by catastrophe modeler Nick Lamparelli. You can read part one here.

“You stop sending me information, and start getting me some.” Gordon Gekko

In this, the second part of our series on CAT models, we will go into the guts of a catastrophe (CAT) model and explain how they are constructed, assumptions embedded in them, and the financial consequences of these assumptions.