Insurance-Linked Securities: Embracing Catastrophic Risks




  • Insurance-linked securities can be an attractive investment as they are uncorrelated with other assets;
  • Recent hurricanes in the US have increased the focus on Insurance-Linked Securities;
  • In some jurisdictions, insurance-based solutions are dependent on insurance penetration;
  • There is no reason why Insurance-Linked Securities cannot protect governments as well as companies and individuals.

Mexican government cites “innovations” in new World Bank cat bond


The federal government of Mexico has cited new “innovations” that improve the coverage of its latest catastrophe, which was secured as part of the World Bank’s $1.36 billion multi-country Pacific Alliance cat bond issuance that completed recently.

Having received a $150 million payout from its last earthquake catastrophe bond tranche after the Chiapas earthquake in 2017, the Mexican government has now upsized the level of earthquake coverage it receives from cat bonds with this new deal.

Under this new transaction the Mexican government has secured disaster insurance coverage from two series of earthquake risk linked notes, amounting to $260 million IBRD CAR 118-119.

The coverage is again on a parametric basis, running for a two-year period until February 2020.

Trends in the ILS sector and implications for the wider insurance industry


An overview of the ILS market by Dirk Lohmann, chief executive officer of Secquaero Advisors and Noel Hillmann, chief executive officer of Clear Path Analysis*.

Dirk Lohmann: perspectives of an ILS manager

Coming into the renewal season in mid-October there was a lot of uncertainty as to the potential impact of third quarter events on the reinsurance market and the alternative reinsurance market engaged in collateralised reinsurance transactions.

The general consensus at the time seemed to be that the collateralised reinsurance market, as the dominant provider of retrocessional capacity to the reinsurance market, would face large losses or, at worst, a significant proportion of the collateral posted to secure obligations would be trapped and unavailable for renewal on January 1. The overall magnitude of estimated insured losses (ranging at that time between $100 and $190 billion) seemed to suggest that a major price correction was surely on its way.

Центробанк призвал активно страховаться от плохой погоды


К концу марта Банк России совместно с заинтересованными ведомствами и участниками рынка представит “дорожную карту” по развитию сельскохозяйственного страхования с господдержкой. Затем ее можно будет трансформировать в ряд поправок к действующему закону по агрострахованию.

И медлить нельзя: все большее число российских регионов отказываются страховать риски неурожая, погодных катаклизмов и других чрезвычайных ситуаций. “Наши аграрии рассуждают просто – если год, два, три ничего с урожаем страшного не произошло, то и страховаться от возможных потерь нет смысла, – пояснил в ходе обсуждения консультативного доклада по агрострахованию глава департамента страхового рынка Банка России Игорь Жук. – Тогда как в жизни происходит наоборот: чем чаще проблем не случалось, тем больше вероятность, что они произойдут в ближайшее время”.

Hiscox Re ILS hits $1.5bn, to expand product range to primary risks


Hiscox Re Insurance Linked Strategies Ltd. (Hiscox Re ILS), the manager of third-party reinsurance capital funds at Hiscox, has grown its assets under management to a new high at $1.5 billion after attracting additional capital following the losses of 2017 and now plans to expand its product range too.

Hiscox Re ILS’ assets under management had reached $1.35 billion as of July 2017, but then the major hurricanes and other disaster losses in the second-half of the year will have caused some losses to reinsurance contracts the manager allocates to, likely eroding some of its capacity.

But the ILS manager raised fresh capital, with Hiscox citing that Hiscox Re ILS was, “Able to attract additional qualified investors and entered 2018 with $1.5 billion of assets under management.”

Global Parametrics Natural Disaster Fund to be seeded by DFID


Global Parametrics, the parametric and index-based risk transfer start-up backed by the UK and German governments, is set to receive a seed investment in its insurance-linked Natural Disaster Fund from the UK government’s Department for International Development (DFID).

A Reuters article first stated that the Department for International Development (DFID) is set to invest as much as £25 million into the Global Parametrics managed Natural Disaster Fund over a 20-year period. This was confirmed by a DFID spokesperson, Reuters said.

Extreme Events and Climate Risk


The socioeconomic risks associated with weather-related events and other natural catastrophes are on the rise, exacerbated by climate change and urban development patterns. The adoption of the Sendai Framework for Disaster Risk Reduction, the Agenda for Sustainable Development and the COP21 Paris Agreement promotes the need for a comprehensive approach to managing extreme events and climate risk.

The (re)insurance industry can play a key role in public-private partnerships that take these commitments forward as integral components of national to local development planning.

The Geneva Association conducts research focused on two key pillars: (i) building resilience to extreme events and climate risk; and (ii) the transition to a low-carbon economy. It also facilitates high-level dialogue engaging C-level executives of the insurance industry and authorities from policymakers, standard-setting and regulatory bodies, governments, the United Nations and development organisations.

Kinesis sees more opportunities and is ready to take them


Kinesis Capital Management, the third-party capital vehicle operated by Lancashire Holdings, has seen more opportunities in the market following the 2017 catastrophe events and is ready to capitalise on market conditions in 2018 and beyond, according to Darren Redhead.

Speaking with Artemis in the aftermath of recent catastrophe events and the January 1st, 2018 renewals season, Darren Redhead, Chief Executive Officer (CEO) of Kinesis, discussed the insurance-linked securities (ILS) and broader re/insurance landscape, and what market dynamics could mean for Kinesis moving forward.

The improved rating environment enabled Kinesis to increase the aggregate limits sold for its 1 January 2018 Cycle by around 30% compared to its 1 January 2017 Cycle.

НАФИ: отношение россиян к страхованию ухудшилось


За последний год отношение населения к страхованию ухудшилось: доля положительных оценок стала ниже ‒ 57% (против 65% в 2016 г.), а число негативных – выросло до 32% в 2017 г. (против 21% годом ранее), о чем свидетельствуют результаты всероссийского исследования, проведенного аналитическим центром НАФИ в сентябре 2017 г.

Выше всего оценивают страховую отрасль жители центрального региона (73%). Чем старше опрошенные, тем больше преобладают отрицательные отзывы (70% среди 18-24-летних против 45% среди участников опроса в возрасте 55+).

Retrocession helps shield SCOR from losses, ILS untouched


French reinsurance firm SCOR felt the benefit of its retrocession program in 2017, recording net positives to its balance-sheet as it shielded the reinsurer from higher impacts from losses, but SCOR’s insurance-linked securities (ILS) coverage was untouched, as its Atlas cat bond escaped from the 2017 catastrophes.

SCOR has reported its full-year 2017 results, a year in which its gross premiums written rose by 8.6% (at constant exchange rates) to almost EUR 14.8 billion, with growth seen across the business from life to property and casualty risks.

The company beat analyst consensus on net income, with the P&C reinsurance unit driving performance, while the life business was somewhat weaker in the fourth-quarter.