Catastrophe bonds marked down on hurricane Ida threat

A number of catastrophe bonds have been marked down in end of month secondary market pricing sheets, with some of the anticipated names suffering declines of between 25% and 35% in value.

After hurricane Ida’s devastating landfall with 150 mph winds in Louisiana on Sunday it was always anticipated that there would be a mark-to-market reaction in catastrophe bonds.

The majority of insurance-linked securities (ILS) fund managers seem relatively comfortable that cat bond losses will be largely mark-to-market from the hurricane, as long as the industry loss remains in the current estimated range of around $15 billion to as high as $25 billion.


Insured losses from China’s Henan floods could exceed $1.25bn, says Fitch

The recent severe flooding in China’s Henan province is expected to suppress underwriting margins for the China non-life insurance and reinsurance industry in 2021, with total industry losses expected to exceed US $1.25 billion, according to Fitch Ratings.

At this level of insurance and reinsurance industry loss, it would account for more than 0.7% of the market’s entire premium base, the rating agency has explained.

As we explained last week, Henan in east-central China experienced torrential rainfall since July 16th, triggering devastating floods and landslides.

The equivalent of a year’s average rain fell for three consecutive days in Zhengzhou, the provincial capital, damaging thousands of properties and motor vehicles in the region.


Cat bond activity to pick up, issuance conditions attractive: GC’s Des Potter


Cat bonds are set to buck the trend elsewhere in the ILS market, with a strong issuance pipeline for Q4 2020 and Q1 2021. This is according to Des Potter, managing director ILS origination and structuring at GC Securities, part of Guy Carpenter, in an interview with Artemis.

Encouraged by the firming of reinsurance and retrocession rates, he thought cat bonds would help fill the capacity gap in the retrocession market, where the availability of collateralised aggregate protection has dropped off significantly since 2019.

“We’re seeing a shift away from collateralised reinsurance into the bond market to try to reduce some of the pressure that may exist because investors in the collateralised reinsurance space are pulling back. We’re expecting to see quite an active Q4 in terms of cat bond issuance.”

Asian ILS market to benefit regional re/insurers: Fitch


The development and growth of an insurance-linked securities (ILS) market in Asia can only be a benefit to local insurance and reinsurance carriers, as well as those operating regionally, as the capital markets capacity can help them expand their ability to underwrite and diversify capacity sources, rating agency Fitch explained recently.

Fitch noted in a recent report that Asian insurers and reinsurers are taking up catastrophe reinsurance and retrocession cover in excess of the minimum regulatory requirements to improve their risk mitigation capabilities.

In the future insurance-linked securities (ILS), such as catastrophe bonds and other securitised reinsurance or retro arrangements backed by capital market investors, are likely to assist in this regard.

Alternative capital now 4% of $2 trillion non-life insurance market: Swiss Re


Alternative sources of capital now contributes at least 4% of the global non-life insurance and reinsurance market’s roughly U.S. $2 trillion capital base, according to Swiss Re.

The reinsurance firm puts the overall non-life global insurance capital base at $2 trillion, 80% (or $1.6 trillion) of which comes from primary insurers, 16% (or $320 billion) is from reinsurance firms, with the remaining 4% ($80 billion) coming from insurance-linked securities (ILS) funds, their investors and other alternative capital vehicles.

$80 billion seems rather low for an estimate of alternative capital in the industry at this time, which if you include some of the trapped capital is certainly closer to or above the $100 billion mark, according to our data, which puts alternative capital nearer to 5% of global non-life insurance and reinsurance capital.

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


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.

Cat bond market’s merit underscored. Rate hardening expected: Swiss Re


The catastrophe bond market’s merit was underscored by the way it continued to operate effectively despite recent volatility stimulated by catastrophe losses, but after the losses it is expected that investors will want to see cat bond rates harden, according to Swiss Re.

The global reinsurance firm has published its latest review of the catastrophe bond and insurance-linked securities (ILS) market, analysing issuance through the final months of 2018.

Swiss Re highlights the challenges faced by cat bond investors and cat bond investment fund managers through 2018, both due to fresh losses occurring during the year as well as the hangover left behind by 2017 loss events.

Major UNL retro programs hit market at relatively flat pricing & terms


For all the talk of a capacity crunch in retrocessional reinsurance markets, resulting in a renewal that is seen to be in disarray and set to be very late, we’re told that some major UNL retrocession programs have hit the market offering relatively flat pricing and terms in recent days.

At the same time we’re told that some markets are pushing for up to 30% rate increases for retrocession renewals, particularly on aggregate UNL retro contracts.

Putting those two things together, buyers and brokers seeking flat renewals and markets looking for steep rate increases, it is no surprise that the sides are not meeting and many sources report a lack of agreement on price and terms, in some cases unlike anything they’ve experienced before.

A $200bn catastrophe loss year (that took 18 months to accumulate)


Everyone thought it would take a really significant single loss, or an aggregation of numerous catastrophes that drove significant impacts in a single year, to change the trajectory of pricing. 2017 wasn’t big enough to do it alone. But now that the market has suffered $200 billion of losses, there are rising hopes for positive price movements in 2019.

Our recent global reinsurance market survey found that 40% of our hundreds of respondents believe that the market needed to experience a $200 billion or greater catastrophe loss, or series of loss events aggregating to that amount at least, before any serious change in pricing trajectory would be seen.

The survey, which only included verifiable responses from participants across the insurance, reinsurance and insurance-linked securities (ILS) value chain, revealed what market players thought it might take to meaningfully turn reinsurance pricing.

UNDP Disaster risk reduction financing regional conference


Disasters and the associated economic shocks are a significant threat to human life and personal wellbeing. While the costs have always been significant, disasters are increasingly more expensive.  Between 2005-2014, the Eastern Europe and Central Asia region alone faced 314 disasters, resulting in more than 60,000 people killed, 11 million people affected and US$25 billion in damages.

A lack of resilience to disasters (which increasingly have massive consequential impacts well beyond the direct event) in both developed and developing economies is an increasing threat to economic growth and global security. Therefore, investors seeking to mitigate these risks need to prioritize funding for development that targets resilience and sustainability provided by better infrastructure.