Sovereign Parametric Catastrophe Bonds as means to address the Protection Gap in emerging countries

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Summary

 

  • Of the $232bn. of economic losses from natural disasters in 2019, only $71bn. was insured.
  • 35% level of catastrophe risk coverage in advanced countries downsizes to only 6% in emerging economies.
  • Out of existing disaster risk finance arrangements, the Sovereign Parametric Catastrophe Bonds seem to be the most viable instrument for the ECIS region.

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 continues 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 climate change.

Phoenix CRetro Re’s Savrassov: Sovereign Cat Bonds Work

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Kirill Savrassov, chief executive officer of Phoenix CRetro Re, says the reinsurer’s foray into sovereign catastrophe bonds is a win-win solution for governments in earthquake-prone regions, where insurance penetration has been historically low.

NOAA: Earthquakes of the 20th Century

Flood insurance: new models have become a game changer

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Fifty years ago, Swiss Re published the first issue of its flagship report sigma. The publication has since become a must-read source of information on natural catastrophe risk for the insurance industry. The initial idea behind sigma was borne in the wake of the 1965 Hurricane Betsy, which caused extensive flooding across the state of Florida and the US Gulf Coast. The resulting damage exceeded USD 1 billion – at the time an unprecedented loss from a single storm event. The insurance industry was caught off guard. This motivated Swiss Re to address, in the company’s own words, “the lack of useful statistical data” which made it “either very difficult or altogether impossible to provide insurance for the power of nature risks”.

Bridging the capital efficiency gap

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There’s vast potential for the re/insurance sector to help firms, governments and countries de-risk their balance sheets, says Andy Marcell, CEO of Aon’s Reinsurance Solutions business.

According to Aon’s Impact Forecasting team, there were an estimated 156 natural disaster events globally during the first half of 2018. Not one of these events was classified as a ‘mega catastrophe’ – an event that causes economic damage beyond $10bn – yet there were at least 15 separate billion-dollar events, all of which were weather-related, except for one earthquake event.

10 myths about parametric insurance

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In our last article “What is parametric insurance?” we established the basics of what a parametric insurance solution is – its key attributes, how it works and what makes it different from a traditional insurance solution.

However, we often hear a number of misconceptions about parametric or index based insurance solutions. In this article, we wanted to set the facts straight about the top 10 myths that we often come across when presenting parametric insurance solutions to clients.

New regions, lines of business crucial to cat bond evolution: Johansmeyer, PCS

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Albeit down year-on-year, catastrophe bond issuance in the first-half of 2018 remained impressive driven by a record-breaking Q1 and solid Q2. But while activity is still robust, the continued evolution of the sector will require new regions and lines of business in order to attract more sponsors.

This is according to Tom Johansmeyer, Co-Head, PCS Strategy & Development at ISO, who recently spoke with Artemis about 2018 catastrophe bond issuance, in light of the release of the PCS H1 2018 Catastrophe Bond Report.

As the report shows, excluding cat bond lites, private deals and transactions focused on lines outside of property, catastrophe bond issuance in the first-half of 2018 totalled roughly $7.4 billion, which is down from the huge $8.8 billion recorded in H1 2017, but nevertheless impressive.