Catastrophe bonds a win-win for governments & investors, says APEC

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The Asia-Pacific Economic Cooperation (APEC) continues to see the development of a regional catastrophe bond market as positive, highlighting at a recent workshop that cat bonds are a win-win relationship for governments and investors.

The workshop last week was convened by The World Bank Treasury alongside the APEC Business Advisory Council (ABAC) and Asia-Pacific Financial Forum, to educate on the use of catastrophe bonds as disaster risk transfer instruments for the APEC Regional Disaster Risk Financing and Insurance Solutions Working Group.

The goal is to expand the understanding of the role catastrophe bonds can play, as well as the important role insurance and reinsurance risk transfer products play in protecting the fiscal budgets of countries against impactful natural disasters.

Cat bond & ILS coupons should compensate as climate increases hurricane risk: Twelve Capital

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Climate change, variability and the expected increases in Atlantic hurricane risk that these factors will drive, is still likely to be compensated for in catastrophe bond and private insurance-linked securities (ILS) coupons, as pricing should rise and consequently returns, in line with the risk, according to ILS manager Twelve Capital.

Twelve Capital, the Zurich headquartered insurance sector specialist fund manager, works with machine learning focused climate technology company, reask on hurricane risk analysis. The pair have looked at how climate change and climate variability will influence the market and impact portfolios of ILS or cat bonds.

They expect we will see a “modest increase in Atlantic hurricane risk over the forthcoming decades as a consequence of climate change.”

Sovereign Parametric Catastrophe Bonds as means to address the protection gap in emerging countries

As mentioned by AON in their Weather, Climate & Catastrophe Insight: 2019  Annual Report, last year brought $232 billion of economic losses from natural disasters whereby only $71 billion was actually insured. It outlined that the world continue to face a fundamental issue of insurance gap, especially in emerging and developing countries, where losses for businesses and governments are only increasing following a decade-long rise in natural catastrophes linked to the climate change.

Protection gaps exist in both emerging and developed markets. However, with estimated by Swiss Re 35% level of catastrophe risk coverage in advanced economies versus 6% in emerging economies, the issue is far more important for the developing world, where the cost of disasters is not just measured in the deaths and injuries that they cause, but also in their long lasting economic impact on survivors and countries. Natural disasters there do not just destroy homes, factories, shops and fields; they can altogether annihilate years of economic growth, which is essential for the low and mid-income countries.

GREEN INSURANCE LINKED SECURITIES FRAMEWORK

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Generali has developed its first Green Insurance Linked Securities Framework, in line with the Group’s sustainability strategy.

Insurance Linked Securities are alternative financial instruments allowing for the transfer of insurance risk to institutional investors.

This Framework aims to be the first contribution to develop guidelines for Green ILS structures going forward.

The future Green Insurance Linked Securities will be characterised by the investment of the collateral in assets with a positive environmental impact, and by the allocation of the transferred solvency capital to sustainable initiatives.

Generali develops framework for Green insurance-linked securities (ILS)

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Generali, one of the largest global insurance and asset management companies, has recognised the potential for insurance and reinsurance linked investments to have green or ESG credentials and has developed a framework for Green insurance-linked securities (ILS).

As a recognised European sponsor of catastrophe bonds, as one of the way’s it sources reinsurance protection from the capital markets, Generali is already a participant in the ILS market.

But the company is also a huge investor and has a focus on creating new framework’s for sustainable investing, resulting in this move to develop what it calls a “Green Insurance Linked Securities Framework”.

Generali said that this is aligned with its own sustainability and capital management strategies, with the initiative to develop a framework for Green ILS closely related to one it has already worked on for Green bond investing.

Jamaica readies for first cat bond, already budgeting for its renewal

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Despite the fact a catastrophe bond for Jamaica has not yet come to market, after receiving support to pay premiums for the in-development first issuance the Caribbean island nation is already preparing to budget for its future renewal.

Jamaica’s government has been working towards sponsoring its first catastrophe bond for at least two years, with assistance from the World Bank.

Our latest two updates on Jamaica’s progress towards becoming a cat bond sponsor discussed the support provided by the World Bank in risk modelling for the perils to be covered, and funding the country has received to help in paying cat bond premiums to investors.

Mexico returns for $425m+ quake & hurricane World Bank cat bond

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The government of Mexico has returned to the catastrophe bond market with the help of the World Bank and its International Bank for Reconstruction and Development (IBRD), seeking a $425 million or larger slice of parametric earthquake and hurricane disaster insurance from the capital markets through an issue we’ve named IBRD / FONDEN 2020 that is the first to incorporate sustainable development bond features.

The new transaction, which has just come to market according to sources, will be the sixth catastrophe bond that the government of Mexico’s natural disaster fund, FONDEN will be the ultimate beneficiary of.

Details on the others, the soon to mature 2018 issuance IBRD CAR 118-119, the 2017 issuance that was triggered by the Chiapas earthquake IBRD / FONDEN 2017, the 2012 cat bond that paid out after hurricane Patricia MultiCat Mexico Ltd. (Series 2012-1), the 2009 issued MultiCat Mexico 2009 Ltd., and the 2006 issuance CAT-Mex Ltd., can all be found in our extensive catastrophe bond Deal Directory.

World Bank helps Vanuatu & Grenada to catastrophe contingent financing

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The World Bank has helped two more countries join those benefiting from a source of catastrophe contingent disaster risk financing, as both Vanuatu and Grenada become the latest to receive a Catastrophe Deferred Drawdown Option (Cat DDO) arrangement.

The World Bank continues to deliver these catastrophe contingent risk financing solutions to countries exposed to peak perils as a way to introduce them to contingent disaster risk finance and insurance or reinsurance related arrangements.

The Catastrophe Deferred Drawdown Option (Cat DDO) is now one of the staple sources of capacity for countries interested in disaster risk financing, thanks to the help of the World Bank.

Cat bonds, risk pools, parametric triggers key to risk mitigation: Aon

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Innovative insurance and reinsurance mechanisms such as catastrophe bonds, risk pooling facilities and parametric triggers are all key ways that risk mitigation can be improved in the world’s most vulnerable areas, Aon said today.

The insurance and reinsurance broker highlighted the continuing issue of the protection gap and the need for society to build greater resilience against catastrophes.

Just in the last decade, natural catastrophes have driven global economic losses amounting to US $2.98 trillion, Aon’s data shows.

Parametric risk transfer critical to address climate change: WTW’s Hess at Davos

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To reach the required levels of adaptation and increase the world’s resilience to climate change, parametric insurance is critical in order to manage the long-term impacts and the transition, according to Carl Hess, Head of Investment, Risk and Reinsurance at broker Willis Towers Watson (WTW).

Hess was speaking as part of a panel session at the 2020 edition of the annual World Economic Forum (WEF) meetings in Davos, Switzerland.

He explored what needs to happen in order to get people to invest more in the preparation that is required to reach the adaptation needed, and ultimately increase the resilience of the world to the impacts of climate change.