Climate risk protection gaps need capital market (ILS) solutions

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The physical climate risk protection gap, so the gulf between climate related losses covered by insurance, reinsurance or risk transfer and those going uncovered, is widening, but instruments such as insurance-linked securities (ILS), catastrophe bonds and other blended financing solutions can help to narrow this gap.

In real estate the climate risk protection gap is particularly stark and financing tools are needed urgently to help absorbing some of the climate exposure that is uncovered at the moment, Fitch Ratings explained in a recent report.

The rating agency looked at the need for risk transfer and risk financing instruments that can help in the global response to longer-term climate related exposures, explaining that there are a patchwork of insurance and reinsurance related solutions, but that in insurance-linked securities (ILS) we perhaps get a glimpse of emerging financial products that could, in future, make a significant difference.

Croatia hit by M6.4 earthquake, strongest recorded to hit the country

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Yesterday, Croatia was struck by a magnitude 6.4 earthquake that has destroyed many buildings and was the largest quake to strike the country since the introduction of modern seismic instrumentation.

The M6.4 earthquake struck central Croatia at 11:19 GMT on Tuesday December 29th at a depth of 10km around 30 miles southeast of the capital city Zagreb.

The earthquake was widely felt in the region, with shaking experienced across the Balkans and property damage experienced in a wide number of towns and villages across central Croatia.

City National Rochdale ILW fund lifts assets by 13%

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City National Rochdale’s largely industry loss warranty (ILW) focused mutual insurance-linked securities (ILS) investment fund increased its total net assets under management to $147.8 million by the end of October 2020, an increase of 13% in the quarter.

The City National Rochdale Select Strategies (CNRLX) fund is an interval style mutual fund with a focus on investments in industry loss warranty (ILW) reinsurance and retrocession contracts across global peak peril zones, as well as some regional U.S. ILW contracts. In addition, the fund also holds some investments in catastrophe bonds.

The fund accesses the returns of the ILW market and sources its risk-linked investments through a relationship with asset manager Neuberger Berman’s experienced ILW and index reinsurance investment team.

How to close Asia’s insurance protection gap

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Asia will drive the growth of the global insurance market in the years to come. Technological innovation along with solid financing and the right policies will be needed to make sure as many people as possible in the region get the insurance protection they need.

The demand for insurance in Asia in the coming decade will be shaped by rising household income levels of a rapidly expanding middle-class, policy measures to accelerate financial inclusion, and strengthening social protection and government insurance programs.

Governments are also increasingly making businesses, households, and individuals responsible for managing the adverse financial consequences of risks to assets, lives, incomes, and livelihoods.  One can, therefore, expect increased spending on buying protection and an expanding role for the insurance and capital markets to manage contingent liabilities better. The same holds for access to medical care, which will be spurring demand for health insurance.

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Brazil formalises ILS and special purpose reinsurance vehicle rules

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Brazil has now published its awaited rules on insurance-linked securities (ILS) issuance and special purpose reinsurance vehicles, which are due to come into force from January 4th 2021 bringing domestic ILS capabilities to its marketplace.

As we’ve documented previously, the insurance and reinsurance market regulator, the Superintendência de Seguros Privados (Susep), had been seeing feedback on a framework for legislation and a regulatory regime to allow for the issuance of insurance-linked securities (ILS) in Brazil.

As we also previously reported, Brazil’s regulator, Susep, had also called for the local insurance and reinsurance sector to embrace transparency to support these ambitions of enabling ILS to be issued domestically.

Where the new ILS opportunities lie – and how to access them

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In a webinar hosted by Intelligent Insurer’s Re/insurance Lounge, AkinovA CEO Henri Winand and Kirill Savrassov of Phoenix CRetro explored the possibilities for ILS to expand into new geographies and lines of business.

A significant motive for bringing insurance-linked securities (ILS) to new geographies is diversification of portfolios, according to Henri Winand, founder and chief executive officer of AkinovA.

Speaking in an Intelligent Insurer Re/insurance Lounge webinar titled “New domiciles, new risks, new structures: another evolution for ILS”, he noted that while an attraction of ILS is that it is seen as uncorrelated from the capital markets, it has a disadvantage in that portfolios are largely concentrated in North America, and to some extent in Asia.

Izmir, Turkey earthquake industry loss estimated at EUR 55m by PERILS

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The earthquake that struck off the coast of Turkey on October 30th and devastated some areas including the Izmir region is estimated to have only cost the insurance and reinsurance industry EUR 55 million, according to an estimate from PERILS AG.

The earthquake cause significant property damage around the Izmir region, downing buildings and damaging hundreds more, while some 114 people have been reported to have died from the quake.

Interestingly, PERILS, the Zurich based provider of insurance and reinsurance market loss information, explains the Izmir earthquake as a magnitude 6.9 event, despite the fact the USGS has reviewed the event as a magnitude 7.0.

Interview to Investing in Private Markets, Europe 2020 Report: “Growth potential and resilience of ILS as an alternative capital”

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Investing in private markets remains a prevalent strategy for institutional asset owners, and one that has demonstrated resilience even through the duration of the first quarter of this year as the Covid-19 pandemic spread across the globe. This is not to say private markets investment has been without issue, in the early months of the pandemic investing capital proved problematic in part because businesses were under financial pressure, and in part that funds were unable to access financing.

This report brings together UK and Wider Europe based Investment Actuaries, Heads of Insurance Asset Management, Investment Managers, Head of Investments and Senior Specialist. We explore regulatory improvements, investigate the due diligence that investing in private markets requires, dissect the information disadvantage, evaluate diversification as a key benefit, discuss the supply and demand imbalance, and address the increased role of climate positive and infrastructure related investments.

Catastrophe bond spreads back at their highest since 2012/13

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Artemis’ data on the catastrophe bond market shows that excess spreads, so the return available above expected loss, of new issuance so far in 2020 is now back at levels last seen in 2012/13.

The market for catastrophe bonds and related insurance-linked securities (ILS) has already broken records in 2020, with more set to fall.

Earlier in November, our Deal Directory saw a first record broken as the number of deals issued in 2020 so far surpassed a record previously set in 2018.

Then, just over a week ago, catastrophe bond and related insurance-linked securities (ILS) issuance in 2020 reached a new annual record, exceeding $14 billion for the very first time.