Dominican Republic gets $150m World Bank catastrophe contingent credit

ORIGINAL PUBLICATION HERE

The Dominican Republic has secured the first catastrophe contingent line of credit in the Caribbean, with a $150 million Catastrophe Deferred Drawdown Option (Cat DDO) supported by the World Bank, that provides immediate financing in the event of natural disasters or public health emergencies.

The World Bank explains that this is the first contingency line of credit in the Caribbean, enabling the Dominican Republic with access to $150 million of immediate financing post-event. Furthermore, the Cat DDO provides the Dominican Republic with financing without removing any resources from both social and development programmes.

Proof of the ILS pudding

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ILS as an investment class could benefit from diversity but this must be done with care. Objective triggers must be created carefully to allow for proper pricing, as Clive O’Connell of McCarthy Denning explains.

In 1992, Hurricane Andrew was the catalyst behind the development of insurance-linked securities (ILS). In 2005, hurricanes Katrina, Rita and Wilma led to the growth and use of ILS solutions. Now, in 2017, hurricanes Harvey and Irma could drive the development of ILS beyond the Gulf of Mexico and US Atlantic coast, and possibly beyond the realm of natural catastrophe.

The recent storms show the use and effectiveness of ILS as a protection product. The insurance and reinsurance industry has been insulated from the significant losses caused by these almost unprecedented storms by alternative capital invested through ILS products. Regulators will look on in the comfortable knowledge that insurers and reinsurers are sufficiently solvent to meet losses at unprecedented levels with little concern about failures. Risk-based capital regimes and the use of ILS within them, have done their jobs.

New Paradigm parametric policies settle within days of hurricane Irma’s landfall

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Parametric risk transfer contracts sold by specialist managing general agent New Paradigm Underwriters settled within nine days of Hurricane Irma’s landfall in Florida.

Demonstrating the speed with which event reports can be obtained for contracts with parametric triggers, New Paradigm’s product has already been through the calculation process, dealt with by risk modelling firm RMS, using wind speed data from the WeatherFlow network of anemometers.

The fact that the hurricane wind speeds are recorded in real-time by the network of storm hardened anemometers means the data can be made available to the calculation agent quickly after an event, with final settlement information then available to the parties within a matter of days.

Pacific Alliance targets 2018 catastrophe bond issue

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The Pacific Alliance trade bloc in Latin America continues to work towards its first catastrophe bond issue, with reports suggesting that progress continues to be made with the assistance of the World Bank and 2018 mooted as a potential year for issuance.

The Pacific Alliance members, Peru, Chile, Colombia, and Mexico, has previously had discussions involving reinsurance firm Swiss Re about the potential for a joint catastrophe bond issue.

A report from Latin Finance magazine says that these discussions, which began in 2015, are ongoing with the technical support of the World Bank, with disaster insurance the agenda and catastrophe bonds the likely vehicle that could be used to secure it.

Инвестирование в катастрофические облигации: это работа со штормами

ОРИГИНАЛЬНАЯ ПУБЛИКАЦИЯ ЗДЕСЬ

Страховые ценные бумаги (ILS) – относительно новый, быстро развивающийся класс активов. Прежде всего, ILS являются механизмом, с помощью которого страховщики и перестраховщики защищают себя от крупных событий и классом активов, предоставляющим инвесторам диверсификацию рисков, существующих в другие видах инвестиций на фоне привлекательной нормы доходности. Риски ILS не связаны с ситуациями на финансовых и прочих рынках капитала, и поэтому вложения в страховые ценные бумаги обеспечивают надёжное хеджирование классических инвестиционных рисков.

ILS возникли после урагана «Эндрю» в 1992 году, когда страховщикам и перестраховщикам потребовалась защита своего капитала от риска накопления убытков при серьезной природной катастрофе. Однако, обычным явлением использование продуктов ILS стало только в 2005 году после урагана «Катрина». Мало того, что Катрина оказалась самым большим страховым убытком, но и время его наступления незадолго до глобального финансового кризиса в 2008 года, сыграло стимулирующую роль в ILS.

GTNews: Investing in cat bonds: it’s going down a storm

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Insurance Linked Securities (ILS) are a relatively new asset class which is developing quickly. ILS is a mechanism by which insurers and reinsurers protect themselves against major events and an asset class which provides investors with, not only a good rate of return, but also diversity from risks that affect other forms of investment. ILS risk is not correlated to the financial markets and therefore ILS provides a hedge against more usual investment risk.

ILS came into being after Hurricane Andrew in 1992 when insurers and reinsurers required capital protection against the risk of accumulation of losses arising out of a major natural catastrophe. It was not until Hurricane Katrina, however, in 2005, that the use of ILS products became commonplace. Not only was Katrina the largest insurance loss that had occurred, but its timing, shortly before the global financial crisis in 2008, proved opportune.

Bridging the protection gap in Eastern Europe

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For some families living in the former industrial regions of Eastern European countries, the social welfare payments offered by the Government are the most expected moment, each and every month. They are most helpful as a survival tool but, at the same time, combined with insufficient or even sometimes inexistent state-driven programs for tackling these issues, are considered by experts as a factor against actual change in both mentalities and lives.

Beside the subsistence funds coming from welfare, the same people theoretically benefit from public health insurance schemes and, at least in one country – even from a mandatory household insurance. In practice however, things are not always what they seem to be. There is however, in most Eastern European countries, an enormous protection gap, experts tend to agree, between the bottom layer of Government assistance and the upper one consisting of traditional insurance – unaffordable in these cases.

Industry loss warranty (ILW) payouts could be in the billions

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According to market sources, both traders and ILS fund managers, following the impacts of hurricanes Harvey and Irma a number of industry-loss warranty (ILW) contracts are expected to payout, with the total at risk seen as in the billions.

One ILW trader told Artemis that there could be as much as $2 billion worth of ILW’s that payout for the impacts of the two major hurricanes that made landfall in the United States.

ILW’s provide reinsurance and retrocessional protection and use a trigger based on the total insurance industry loss, as reported by a third-party agency.

With ILW contracts requiring a third-party generated number on the industry exposure, the contracts typically use an agency responsible for aggregating and reporting losses with the most widely used being Property Claim Services (PCS) catastrophe series data.

Cat bonds & ILS an important part of the protection gap solution: S&P

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The disparity between overall economic and insured losses post-natural catastrophe, as seen recently in both developed and emerging parts of the world, highlights the potential for greater participation and risk transfer from the insurance-linked securities (ILS) space, suggests Standard & Poor’s (S&P).

In a recent report, analysts at ratings agency S&P have underlined the potential for ILS structures and capacity to assist with closing the global protection gap.

As shown by the recent impact of hurricane Harvey in the U.S., hurricane Matthew in Haiti in 2016, and typhoon Haiyan which struck the Philippines in 2013, there’s a serious lack of insurance penetration for some of the world’s perils and in some of the most susceptible regions.

Avatar & Safepoint cat bonds lead prices down on hurricanes

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A number of outstanding catastrophe bonds have had their secondary market values marked down, as losses could be expected due to the impact of recent hurricanes Harvey and Irma. But the brokers do not currently seem to have a clear view of cat bond losses and prices in some cases diverge dramatically.

Considered particularly at risk are a number of per-occurrence catastrophe bonds sponsored by Florida primary insurance specialist firms, as these companies could be the ones that draw on reinsurance arrangements the most of all.

Also considered at risk are annual aggregate cat bonds that provide retrocessional coverage to reinsurance firms, with the notable markdowns being to cat bonds sponsored by XL Catlin, Everest Re and Allianz Risk Transfer, as well as some aggregate cat bond markdowns for primary giant USAA.