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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Global insurance protection gap hit $1.4 trillion high in 2020: Swiss Re

The global insurance protection gap, or the gap between economic losses and those that are insured, widened in 2020 as pandemic related effects drove global macroeconomic resilience to decline by 18%, according to a measure by reinsurance firm Swiss Re.

Swiss Re Institute has published its Resilience Index, which shows that the COVID-19 pandemic reduced global macroeconomic resilience by close to a fifth in 2020.

Global economic growth is expected to recover strongly in 2021, after the pandemic-induced recession in 2020, thee reinsurance firm said, which it expects will help to build macroeconomic resilience again.

However, Swiss Re warns that “there will not be a return to pre-COVID-19 levels of resilience in 2021.”

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The only asset class that helps people rebuild after natural disasters

A core reason that insurance-linked securities (ILS), such as catastrophe bonds and other reinsurance linked investments, are considered as socially responsible investments by many allocators is the fact they deploy their capital into natural disaster recovery and rebuilding.

While ESG, environment, social and governance factors, are now seen as becoming critical for insurance-linked securities (ILS) strategies future popularity, the truth is that at least the S (social) aspect of ESG has been firmly embedded in the majority of ILS right from the start.

We first wrote about the importance of ESG for the catastrophe bond and broader ILS market back in 2009, when for the first time we learned of a pension fund citing ESG as an important criteria for its consideration of investing in a cat bond fund.

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Generali targets EUR200m Lion III Re “green cat bond”

Italian and global insurance giant Assicurazioni Generali S.p.A. is back in the catastrophe bond market with its fourth issuance, a EUR 200 million Lion III Re DAC cat bond through which it is seeking collateralized catastrophe reinsurance while adding “green” features to a cat bond issue.

It’s Assicurazioni Generali’s first cat bond issuance since 2017, it’s fourth in total, and marks a renewal of that also EUR 200 million Lion II Re DAC deal, although covering fewer perils as European flood coverage has been dropped for this new iteration of the Lion catastrophe bond.

It’s also the first cat bond from the insurer, in fact the first cat bond we’ve listed, to have a number of specific green credentials, as Generali looks to bring greater sustainability to cat bond issues, to make the resulting investment more ESG appropriate for investors.

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ILS is a growing part of the ESG mosaic, say industry experts

As responsible and sustainable investing continues to gain traction, the insurance-linked securities (ILS) asset class is expected to play an increasing role, but it’s important that the sector tells its own environmental, social and governance (ESG) story.

This is according to ILS and reinsurance industry experts speaking recently at the virtually held SIFMA Insurance and Risk Linked Securities conference.

The opening day of the event ended with a panel discussion on the future of ESG in the ILS market, moderated by Andy Palmer, Director, Deputy Head of ILS structuring, Swiss Re Capital Markets Limited.

Early in the discussion, panellist François Divet, Head of Insurance Linked Securities, Structured Finance, AXA Investment Managers, explained that at both AXA IM and the wider AXA Group, ESG subjects are viewed as extremely important for the reinsurance industry as a whole.

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World Bank fully supportive of direct sovereign risk transfer: Bennett

ARTEMIS: The efforts of the World Bank around disaster risk financing for its members continues to be a real benefit, and while the organisation can and will do more, this isn’t about being the dominant force in the market, according to Michael Bennett, Head of Derivatives & Structured Finance, World Bank Treasury.

During last month’s annual ILS conference in New York City, held virtually for the first time owing to restrictions, Artemis spoke with Bennett about the World Bank’s use of reinsurance and insurance-linked securities (ILS) structures for member governments, and how this might evolve in the future.

So far, the World Bank has transferred some $4.5 billion of risk to the markets, of which the large majority (65%) has been via ILS structures; showing how beneficial capital markets-backed protection has been for both the organisation and its members.

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Cat bonds: Structurally diversifying & primed for growth, says Neuberger Berman

FULL ORIGINAL PUBLICATION HERE. COPY OF THE FULL WHITE PAPER HERE.

Catastrophe bonds and insurance-linked securities are one of the “very few genuinely, structurally diversifying asset classes,” according to the Neuberger Berman Insurance-Linked Strategies team, who give the asset class a positive outlook for 2021.

Writing in a white paper, the Insurance-Linked Strategies team of global asset manager Neuberger Berman explain that they also believe catastrophe bonds remain attractively valued and as an asset class is set to continue growing.

Catastrophe bonds, among the ILS universe, are particularly attractive to institutional investors, given they enable access to the returns of “a fundamentally uncorrelated asset class (natural catastrophe risk) in a form that is typically more liquid than most reinsurance contracts and vehicles,” the Neuberger Berman ILS team states.

World Bank has ‘only scratched the surface’ on what it can do: Bennett, ILS NYC 2021

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The World Bank has “only scratched the surface” on what it can do with member governments that are looking to transfer some of their disaster risk to the reinsurance sector and the capital markets, according to Michael Bennett, Head of Derivatives & Structured Finance, World Bank Treasury.

The World Bank is an international organisation with 189 member governments. Through the use of both traditional reinsurance and the issuance of catastrophe bonds, a sub-sector of the insurance-linked securities (ILS) space, it helps its members transfer disaster risk to the markets.

The focus of the Treasury Department of the World Bank is often the tail-end of a broader engagement with a given member designed to assess and quantify their disaster risk.

Catastrophe protection gap needs capital market support: Bernardino, EIOPA

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Gabriel Bernardino, the soon to retire Chairman of the European Insurance and Occupational Pensions Authority (EIOPA), has highlighted the capital markets role in delivering catastrophe insurance that has fewer protection gaps.

In an interview with Brink News, Bernardino explained the need for multi-peril catastrophe insurance and reinsurance coverage that protects against the uncovered portion of risks, such as non-damage business interruption related to a pandemic or other peril, just as much as physical property damage.

“I think there is a clear recognition from all parties, that the current situation — when we look at the coverage of business interruption — is far from optimal. It creates risks for the companies and reputational risks for the insurance market,” Bernardino explained.

ILS maturing nicely, but education still needed: Mayer Brown, ILS NYC 2021

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Overall, the insurance-linked securities (ILS) market is maturing in an attractive manner but as new sponsors and jurisdictions enter the fold, there’s a need for continued education, according to global law firm Mayer Brown.

The legal work in the ILS world is significant and critical in driving innovation and ensuring everything is in order, the way both sponsors and investors really need it to be.

Against this backdrop, the final day of our Artemis ILS NYC 2021 conference commenced with a discussion with three Partners from Mayor Brown, all of whom work on numerous ILS transactions and structures.