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Diversification across catastrophe risks between different territories and natural perils is essential, according to Anthony Harrington
At a glance
• Good diversification across natural perils is necessary but the public cat bond market is highly concentrated in US wind.
• Yields fell in 2013 and 2014 as capital flowed into cat bonds.
• Secondary market trading and the private placement market can improve diversification and yield.
Translation of the original article for our Romanian speaking partners with permission from the publisher
Titlurile de valoare legate de asigurari castiga in popularitate ca si clasa pentru diversificarea activelor, dar care sunt strategiile disponibile, riscurile subiacente si costurile? Carlo Svaluto Moreolo clarifica:
PE SCURT
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Titlurile de valoare legate de asigurari castiga in popularitate ca si clasa pentru diversificarea activelor, dar care sunt strategiile disponibile, riscurile subiacente si costurile? Carlo Svaluto Moreolo clarifica:
ORIGINAL PUBLICATION HERE
Brian Tobben, chief executive officer of Aspen Capital Markets, takes a closer look at the capital markets’ return requirements for catastrophe risk. He suggests that as the Insurance Linked Securities (ILS) market matures investor return targets for catastrophe risk will be primarily driven by long term average corporate bond spreads.
Are We There Yet?
The recent price stabilization in the ILS sector has led many to wonder whether the market has found a permanent pricing floor. This possibility is bolstered by reports that capital inflows into the largest ILS funds slowed to a single digit percentage increase in 2016. Further, Aon Securities recorded 2015 cat bond issuance of $6.9 billion, well below the $8.3 billion of issuance in 2014. Some have concluded that the capital markets appetite for catastrophe risk is waning.
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With the right investment strategies alternative capital can have a significant positive impact on most investors’ overall portfolios, as Paul Schultz, CEO of Aon Benfield Securities, explains.
Traditionally, investors have looked to equities, bonds and cash instruments as places to put their money on the expectation that doing this will generate a return on their investment.
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It’s not just the rare large cat events that concern reinsurers: it would be a mistake to dismiss the impact of frequent smaller catastrophes on the global risk and capital supply chain, says Tom Johansmeyer, assistant vice president, reinsurance services, marketing at ISO/Verisk Insurance Solutions.
Was 2015 a small catastrophe year or a big one? According to conventional wisdom, last year was barely a blip on the radar. US and Canadian insured catastrophe losses combined approached only $15 billion. With the exception of the fourth-quarter tornadoes in Texas, natural catastrophe merited little more than a footnote in discussions around the January 1, 2016, reinsurance renewal.
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Clear and unambiguous wording of trigger clauses in ILS contracts is vital to their success, says Clive O’Connell of McCarthy Denning.
When a lawyer looks at an ILS contract wording, the first clauses that she or he ought to review are the law, jurisdiction and dispute resolution clauses. From these, a lawyer can determine how the rest of the contract should be read and interpreted, and even whether he or she is qualified to interpret it.
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It’s official: Bermuda has Solvency II third-country equivalency, as of today.
That means the European Union considers the standard of the island’s insurance regulation to be equivalent to its own.
In November last year, the European Commission recommended that Bermuda should be considered as in line with the tough new insurance rules being adopted across the 28-country bloc.
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Don Mango, Vice Chairman, Enterprise Analytics at Guy Carpenter has stressed the importance of third-party risk models in the insurance-linked securities (ILS) space, citing the added liquidity it brings to the market.
Artemis wrote recently how ILS market participants debated the necessity of third-party, independent risk modelling in an ILS transaction at the 2016 SIFMA IRLS conference in New York; discussing the benefits risk analysis disclosure brings to investors in the space.
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Another year passes, another annual report from the Lloyd’s of London insurance and reinsurance market is released and we witness another increase in the positive tone in which the market describes the opportunity to embrace ILS and alternative capital.
Lloyd’s comments about alternative capital in reinsurance and ILS has changed dramatically over the last few years, from Chairman John Nelson’s 2013 warning that third-party capital in reinsurance could lead to systemic issues in the market, to a much more accepting and positively welcoming tone that we see today.
The release of the annual report sees this tone becoming even more positive, laying out the engagement plan and suggesting that Lloyd’s has reached a stage where it realises that it has to welcome alternative capital into the market, on a more wholesale basis, as it really does face a risk of losing out if it doesn’t.
