World Bank climate change plan highlights cat bonds & risk transfer

This week, the World Bank Group announced its new Climate Change Action Plan, with a range of commitments to ramp up and deliver record levels of climate finance, while catastrophe bonds, disaster risk financing and insurance against climate risk are also mentioned

Through its new Climate Change Action Plan, the World Bank is targeting the delivery of record levels of climate financing to developing countries.

At the same time the World Bank aims to work to reduce emissions, strengthen adaptation and align financial flows within the work it does with the goals of the Paris Agreement on climate change.

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Hong Kong ILS enquiries already received from potential sponsors

It increasingly looks like Hong Kong could break into the insurance-linked securities (ILS) market before too much longer, as with details of its ILS grant pilot now available, one local law firm said it is already receiving enquiries from potential sponsors.

Back in February, Paul Chan, the Financial Secretary of Hong Kong, revealed plans for a Pilot Insurance‑linked Securities Grant Scheme that will pay as much as HK $12 million per issuance, which is close to US $1.6 million of potential ILS or catastrophe bond issuance cost savings for sponsors choosing to use Hong Kong as a domicile.

Then, in May this year, Hong Kong’s Insurance Authority (IA) published initial details of the insurance-linked securities (ILS) grant scheme.

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Insurance Europe outlines “vital” need to remove key re/insurance access barriers

Insurance Europe has underlined the importance of removing market access barriers between European re/insurers and the countries Argentina, Brazil, Canada, India and Indonesia.

The governing body believes this action is needed to help reduce protection gaps and avoid dangerous concentrations of risk in these jurisdictions.

Furthermore, avoiding a build-up of climate-related risks in any one jurisdiction and facilitating the sharing of natural catastrophe risk across markets is described as more important than ever.

In Argentina, foreign re/insurers are said to face several barriers, including restrictions on cross-border reinsurance, compulsory investment constraints and foreign exchange restrictions on reinsurance payments.

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More & better “catastrophe-triggered” instruments needed: UN Sec-Gen Guterres

United Nations (UN) Secretary General António Guterres has again said that the world needs more catastrophe-triggered financing and better instruments to support the delivery of climate financing, to enhance disaster resilience, fund adaptation measures and finance climate risk.

Speaking today at the Insurance Development Forum’s (IDF) Summit 2021, UN Secretary General Guterres explained the important roles of the insurance sector (within which we’d include reinsurance and insurance-linked securities (ILS) of course) in adapting to a rapidly changing climate and the race to transition to net zero emissions by 2050.

With more than $35 trillion dollars of assets under management in the global insurance and reinsurance industry, Guterres said, “I encourage the insurance industry to align its portfolios and investments with net zero by 2050.

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Tencent shows tech’s appetite to own access to reinsurance capital

Tencent Holdings Ltd., the Chinese multinational technology conglomerate, has provided one of the clearest examples of a tech giant wanting to own its access to reinsurance capital, a trend we’ve been anticipating would emerge.

Our regular readers know we have a passion for technology, alongside risk transfer and use of efficient capital, believing that the efficiencies of advanced tech can be combined with efficient access to reinsurance capital, in order to provide better, more responsive and ultimately cost-effective insurance products to consumers.

There have been a number of glimpses of this kind of development over the years, with most of the major technology giants of the world having some interest in insurance or reinsurance, or toying with how they themselves access risk capital.

Amazon, Google, Tesla, among others, as well as investors in tech like Softbank, have all been closely linked with initiatives to access reinsurance capital more efficiently, either for pure risk management purposes, or to enable the delivery of customised and better-priced insurance solutions.

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参数化主权巨灾债券是“一带一路”的保险方式

通过与“一带一路”倡议相关的项目获得中国投资的中亚和东欧国家,应使用参数化主权巨灾债券来确保自身免受自然灾害的风险。

这是保险连结证券(ILS)和主权风险转移专家基里尔·萨符拉索夫(Kirill Savrassov)的观点。

萨夫拉索夫指出:《中国的“一带一路”倡议对中亚和东欧的全面保护方案提出了更高的要求》。

《中国将数百亿美元投入了该地区的基础设施建设,但实际上,其中连一个项目也没适当地投保物理伤害的险,尽管该地区面临着地震和其他自然灾害的高风险》。

在乌兹别克斯坦,哈萨克斯坦或塔吉克斯坦等国家,问题不是地震是否要发生,而是何时要发生,并且其毁灭力量多大。

自然灾害会破坏中国通过“一带一路”倡议帮助该地区发展的许多基础设施项目。如果建造后这种项目因地震而摧毁,那么东道国仍将欠缴中国的贷款,但是不会从基础设施投资中获取收益。

FULL PUBLICATION HERE

Collateralized reinsurance renewals firmer than cat bonds or ILW’s

While the catastrophe bond market has been first to experience investor-demand and capacity driven softening, as spreads have increasingly tightened on primary issues over recent months, this isn’t yet reading across to the entire collateralized reinsurance market at the mid-year renewal season, we’re told.

2021 has seen a significant upwell in demand from investors for new catastrophe bond investments, which has driven strong execution and keen pricing to the benefit of sponsors, but resulted in year-on-year softening in that market.

As we’ve been explaining over recent weeks, spread tightening in the catastrophe bond issuance market has now driven multiples to levels last seen in 2019.

This softening of cat bond rates has also spilled over into the industry-loss warranty (ILW) market as well.

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TWIA to double Alamo Re 2021 cat bond to $500m

The Texas Windstorm Insurance Association (TWIA) is now expected to double in size its new Alamo Re Ltd. (Series 2021-1) catastrophe bond transaction, which will now more than replace a soon to mature $400 million cat bond from 2018.

As we were first to report this week, TWIA’s staff said at a meeting on Wednesday that the new cat bond could be upsized, depending on the investor reception to the deal and resulting market pricing.

TWIA returned to the catastrophe bond market for this new Alamo Re 2021 catastrophe bond just over one week ago, at which time it was seeking just $250 million of reinsurance with the issuance.

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Credit Suisse: Cushioning the impact of climate change with cat bonds.

More powerful hurricanes and increasing numbers of earthquakes – climate change is real. What does climate change mean for the alignment of investment portfolios? Investments in cat bonds offer institutional investors interesting opportunities to help shape the future.

Climate change is jeopardizing the creditworthiness of government bonds

“Over the past three decades, there has not been a single year when the average temperature in Switzerland was less than the average,” says Prof. David N. Bresch, Professor for Weather and Climate Risks at the Swiss Federal Institute of Technology Zurich, at Credit Suisse’s EAM thought leadership event. He is drawing attention here to ongoing climate change and the fact that the greenhouse effect needs to be limited to a considerable extent if the goal of the Paris Agreement on climate change to restrict global warming to well below two degrees by 2050 is to be achieved.

Because every degree of temperature rise leads to a 7% increase in humidity. As a result, there is a greater probability of tropical cyclones and hurricanes. An increased probability of natural disasters can in turn impact the creditworthiness of government bonds if national budgets face the additional burden of major loss events. “Countries in exposed regions must practice good risk management in order to secure their creditworthiness in the long term,” says Prof. Bresch.

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Cat bond to narrow Jamaica’s natural disaster financing gap: World Bank

Work continues on the first catastrophe bond for Jamaica and the World Bank has highlighted how the soon to be launched transaction will help to narrow the Caribbean nations natural disaster financing gap.

As yet, the World Bank’s catastrophe bond for Jamaica has not come to market, but it is expected within the coming two months or so, in advance of the peak of the 2021 hurricane season.

Jamaica’s catastrophe bond has been a work-in-progress for some years now, as we’ve documented regularly, but was forcibly delayed due to the Covid-19 pandemic in 2020, as financial market volatility from the coronavirus outbreak put the Caribbean island nations’ first cat bond issuance on-hold, Jamaica’s finance minister previously said.

FULL ORIGINAL PUBLICATION HERE