What ILS funds must learn from Irma

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Despite a multitude of other catastrophes in 2018, the single biggest loss event for reinsurers was so-called loss creep from 2017’s Hurricane Irma. Dirk Lohmann of Schroders examines what went wrong and what the industry must learn.

If there were two words to describe an investor’s perception of one of the key drivers of performance for many insurance-linked securities (ILS) managers (and indeed many professional reinsurers) in 2018 they would without a doubt be ‘loss creep’.

During the course of 2018 the loss estimates provided by Property Claims Service (PCS) for Hurricane Irma increased by $8 billion.

Growth in protectionism & geopolitical tensions to impact re/insurers: Marsh

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Rising geopolitical tensions and protectionist sentiments, in combination with ongoing trade disputes, and resulting in increased uncertainty and risk for multinationals such as re/insurers, according to Marsh, particularly for those with direct foreign investments.

Marsh’s Political Risk Map 2019 rated more than 200 countries and territories on the basis of short and long term political, economic, and operational stability to provide insight into where risks are most likely to emerge and where multinationals should deploy financial resources.

Using data from Fitch Solutions, Marsh observed a transition to a more multi-polar world order of protectionism that is likely to continue through 2019, with isolationist practices rising in some countries and temporarily slowing the progress of globalisation.

ILS growth to come from less conventional sources: Schultz, Aon Securities

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While alternative capital continues to outpace traditional reinsurance capital in terms of growth, the future of the ILS market may come through opportunities from less conventional sources, according to Paul Schultz.

Speaking this morning at the annual SIFMA IRLS conference in Miami, CEO of Aon Securities Paul Schultz indicated that the ILS market is likely to find its expansion does not come from the usual areas of insurance going forwards.

Schultz highlights the continued expansion of ILS, even over the last two years and despite the significant catastrophe losses, which has led ILS capital to expand more quickly than traditional reinsurance, enabling alternative capital to reach 17% of overall reinsurance capital.

Hong Kong government budgets for ILS

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The government of Hong Kong included insurance-linked securities (ILS) in its budget this week, demonstrating the level of importance being placed on developing appropriate legislation in the Special Administrative Region of China.

Hong Kong began planning for the development of legislation to allow for the establishment of reinsurance related special purpose vehicles for use in ILS transactions and for catastrophe bond issuance last year and it remains a priority focus for 2019.

Hong Kong then said it was targeting getting the work to develop legislation to support ILS vehicle domiciling and transactions into its 2019-20 legislative session, which has now been confirmed at the highest levels.

CIS re/insurers struggling to withstand volatile market conditions: A.M. Best

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Insurers and reinsurers in the Commonwealth of Independent States (CIS) are struggling to remain profitable in the face of significant geopolitical instability and regulatory changes, according to a report by A.M. Best.

The rating agency noted that, whilst the overall economy for the CIS improved in 2018 compared to prior years, challenges remain for the insurance sector, with more than a third of companies receiving long-term issuer credit ratings of ‘bb+’ or below.

A.M. Best rates a number of companies based in Kazakhstan, Russia and Azerbaijan, and monitors insurance and economic trends in other CIS countries, which include Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

Singapore’s first ILS transaction paves the way to be Asian hub

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Singapore’s first insurance-linked securities transaction (ILS) has been finalised, according to law firm Rajah & Tann Singapore which acted as Singapore counsel to the transaction. The ILS comprises a catastrophe bond sponsored by Insurance Australia Group.

The bond is the first Australian dollar-denominated catastrophe bond in the global market and a A$75m ($54m) Series 2019-1 Class A Principal At-Risk Variable Rate Notes due 17 January 2022. The bond’s issuer, Orchard ILS, is the first special purpose reinsurance vehicle (SPRV) licensed by the Monetary Authority of Singapore (MAS).

Hong Kong, Beijing discuss risk management for Belt and Road projects

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Representatives of the Hong Kong and mainland Chinese governments have held a sharing session to discuss risks associated with projects under the Belt and Road Initiative.

The session, titled ‘Belt and Road: Hong Kong – IN’ was organised by the Commerce and Economic Development Bureau (CEDB) of the Hong Kong Special Administrative Region government and the mainland Chinese State-owned Assets Supervision and Administration Commission (SASAC), Xinhua reported. Representatives from 10 state-owned enterprises and around 220 professionals from Hong Kong attended the event.

IAG sponsors first Singapore catastrophe bond, A$75m Orchard ILS Pte

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Insurance Australia Group (IAG) has sponsored its first catastrophe bond and the transaction is also the first cat bond to be issued in Singapore, using the countries’ Special Purpose Reinsurance Vehicle (SPRV) regulations.

The AUD $75 million Orchard ILS Pte Ltd transaction has broken new ground by becoming the first cat bond to be domiciled in Singapore.

IAG took advantage of the Singapore insurance-linked securities (ILS) grant scheme, which was launched in February 2018 and allows sponsors to receive a saving on issuance of their ILS transactions, hence the Orchard ILS Pte Ltd. deal provides the necessary evidence that the regulations and domicile are fit for purpose and now this deal could herald a wave of interest in issuing ILS from Singapore.

First Singapore cat bond completed in just a few weeks: Goh, Rajah & Tann

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The successful issuance of the AUD $75 million Orchard ILS Pte Ltd catastrophe bond, the first for sponsoring insurer Insurance Australia Group (IAG) and the first cat bond to be issued in Singapore, took only a few weeks, according to a lawyer who worked on the transaction.

The issuance of the Orchard ILS Pte Ltd. cat bond in Singapore opens up a new domicile for sponsors of insurance-linked securities (ILS), who may choose to follow in IAG’s footsteps to secure reinsurance from the capital markets.

Orchard ILS Pte Ltd. is the first Special Purpose Reinsurance Vehicle (SPRV) to be registered, licensed by the Monetary Authority of Singapore (MAS) and successfully put to use under Singapore’s ILS regulations.

Collateralized reinsurance worked as designed & advertised: John Forney, CEO UPC

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Collateralized reinsurance structures and markets worked exactly as designed and advertised, which gives United Insurance Holdings (UPC Insurance) the confidence to execute on its strategy, according to CEO John Forney.

United (UPC) is a major user of collateralized reinsurance capacity, from insurance-linked securities (ILS) funds as well as from catastrophe bond investors.

The expansive insurer, which began as a Florida property only specialist but has been expanding more broadly nationwide in the United States, has grown its use of alternative capital along with its expansion and as a result the ILS market is a key partner for the company now.