DOCSLIB.ORG

Catastrophe Bond Update: Fourth Quarter 2014 ISSUANCE REACHES INDUSTRY FULL YEAR RECORD

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Catastrophe Bond Update: Fourth Quarter 2014 ISSUANCE REACHES INDUSTRY FULL YEAR RECORD Catastrophe Bond Update: Fourth Quarter 2014 ISSUANCE REACHES INDUSTRY FULL YEAR RECORD After one of the slowest third quarters to date for 144A property and casualty (P&C) catastrophe bond issuance, the fourth quarter saw a flurry of activity that resulted in full year 144A P&C cat bond issuance exceeding USD8 billion — an industry record. Total risk capital outstanding as of December 31, 2014 equaled USD22.868 billion, the highest level of outstanding risk capital the market has ever supported. F-1 F-| 1144A | 1 44AP&C P&C CATASTROPHE CATASTROPHE BOND BOND RISK RISK CAPITAL CAPITAL ISSUED AND AND OUTSTANDING OUTSTANDING – 19 –97 19 TO97 YETO 20 YE14 2014 25,000 25,000 22,86722,.8 867.8 20,000 20,000 18,57618.9,576 .9 14,839.3 15 ,000 14,839.3 15 ,000 13,416.4 13,416.4 12,508.2 12,508.2 12,342.8 12,538.6 12,195.7 12,538.6 12,342.8 10,000 12,195.7 10,000 7,677.0 8,026.7 7,187.0 7,083.0 8,026.7 Risk Capital Amount (USD Millions) 7,677.0 5,085.0 7,187.0 5,855.3 7,083.0 Risk Capital Amount (USD Millions) 4,289.0 4,614.7 4,599.9 5,000 4,107.1 5,855.3 5,085.0 3,396.0 4,289.0 4,614.7 3,009.9 4,599.9 5,000 1,988.2 4,107.1 1,499.0 3,396.0 948.2 874.2 1,052.5 1,142.0 966.9 989.5 1,142.8 3,009.9 1,988.2 0 1,499.0 948.2 874.2 1,052.5 1,142.0 966.9 989.5 1,142.8 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 YTD 1997 19Risk98 Capital1999 Issued2000 2001 Risk2002 Capital2003 Outstanding2004 2005 2006 2007 2008 2009 2010 2011 Sour20ce:12 Guy Carpente2013 r2014 YTD Risk Capital Issued Risk Capital Outstanding Source: Guy Carpenter Persistent year-on-year growth in issuance and risk capital outstanding indicates that the market is showing signs of maturity and stabilization. Seven new sponsors entered the 144A P&C cat bond market in 2014, issuing ten new tranches of notes. Of the seven, five were insurers, one was a reinsurer and the other a residual markets insurer. T-1 | 2014 NEW MARKET ENTRANTS Deal Sponsor Sponsor Type USD Notional Covered Perils (Millions) Gator Re Ltd. 2014-1 American Strategic Insurance Group Insurer 200.00 U.S. Named Storm and Severe Thunderstorm U.S. & Canada Named Storm, Earthquake, Riverfront Re Ltd. 2014-1 Great American Insurer 95.00 Severe Thunderstorm and Winterstorm Citrus Re 2014-1 Heritage Insurer 150.00 Florida Named Storm Citrus Re 2014-2 Heritage Insurer 50.00 Florida Named Storm Lion I Re Limited Generali European Insurer 262.20 Europe Windstorm Kilimanjaro Re 2014-1 Class A Everest Re Reinsurer 250.00 U.S. Named Storm Kilimanjaro Re 2014-1 Class B Everest Re Reinsurer 200.00 U.S. Named Storm and Earthquake Kilimanjaro Re 2014-2 Everest Re Reinsurer 500.00 U.S. & Canada Eartquake Aozora Re Series 2014-1 Sompo Japan Nipponkoa Japanese Insurer 99.50 Japan Typhoon Alamo Re Ltd. Series 2014-2 TWIA Residual Market Insurer 400.00 Texas Named Storm Source: Guy Carpenter While no first time sponsors issued bonds in the fourth quarter, six repeat issuers placed USD2.075 billion with capital markets investors in 144A cat bond format. The re-entry of sponsors across a range of underlying businesses further indicates that sponsors continued to recognize the value of insurance-linked securities (ILS) as an appropriate risk transfer mechanism. We expect repeat and new sponsors to continue to utilize the ILS market in 2015, as they seek to complement their traditional coverage with proven, efficient and bespoke features that can be sourced via cat bond protection. 1 The attraction to non-correlative property catastrophe risk resulted in third party capital continuing to be deployed into the ILS sector. Sponsors took advantage of strong investor demand as more than 70 percent of deals coming to market in 2014 settled at greater notional value than initially expected. In the fourth quarter alone, of the six new deals that came to market, four closed at higher notional limits (44 percent higher on average). The continued influx of third party capital from new and existing market participants also favorably impacted ILS pricing for protection buyers. The continued low interest rate environment encouraged institutional investors (such as pension funds and hedge funds) to seek the higher yields offered by natural cat risk notes. As a result, sponsors took advantage of the opportunity to lock in attractive rate on line and essentially, hedge rate volatility. Throughout the first quarter of 2014 final pricing of cat bonds was, on average, 10 percent lower from the midpoint of initial indicative spread pricing guidance, the likely result of sponsors’ conservative pricing in the first half of the year. As declining rates persisted, the differential of cat bond spreads from initial price guidance to final pricing narrowed, reflecting sponsors’ increasing aggressiveness toward pricing expectations. In the fourth quarter, the differential of cat bond spreads from initial price guidance to final pricing normalized as many issuances settled at the midpoint of initial expectations. F-2F- | 202 |1 1-22010141-2 014144A 144A CAT CAT BOND BOND PRICING PRICING (MULTIPLE (MULTIPLE VS. VS. EXPECTED EXPECTED LOSS) LOSS) 12.0x 12.0x Kizuna II -K Aizuna II - A (3/14) (3/14) 10.0x 10.0x Golden GateGolden Re Gate II Re II (9/14) (9/14) 8.0x Armor Re 8.0x Armor Re (5/14) (5/14) Citrus Re CitrusSeries Re 2014 -2 Res Re 2014 - Series 2014(5 -2/14) Tradewynd Res Re 2014Class - 13 Nakama (5/14) Tradewyn2014d-13A Class 13 (5/14) Nakama2014 -21 2014-13A(12/14) 6.0x (5/14) 2014 -21(12/14) (12/14) 6.0x (12/14) Citrus Re Sanders Re Citrus2 Re014 -1 Res Re Class B (4/14) Res2 Re014 -2 Sanders Re 2014 -1 (12/14) Merna V Class B (5/14) (4/14) 2014 -2 Tradewynd Merna V (3/14) (12/14) Tr2014adewyn -1 1Bd & 3B (5/14) Sanders Re (12/14) (3/14) 2014-2 2014 -1 1B & 3B Kizuna II - B Sanders Re (12/14) 2014-2 (5/14) Riverfront Re (3/14) (3/14) Gator Re 4.0xKizuna II - B (5/14) Riverfront Re (3/14) (3/14) Aozora Re (3/14) Gator Re 4.0x (5/14) (3/14) Aozora Re (5/14) Nakama Re Sanders Re Everglades 2014 Nakama 2014 -1 Class C (5/14) NakamaClass Re A & Class B Sanders Re Everglades 2014 2014 -22 (5/14) Kilimanjaro (5/14) Nakama (12/14)2014 -1 (5/14) Class C 2014 -22 Class A & Class B (5/14) Class B 2.0x (5/14) Lion I Re Kilimanjar(4/1o4) (12/14) (4/14) Class B Multiple (Spread over Reference Rate/Expected Loss) Kilimanjaro 2.0x East Lane VILion I Re Sanders Re (4/14) Class A Ursa Re Queen Street IX (3/14) (4/14) Class D (4/14) Class B (2/14) Alamo Re Multiple (Spread over Reference Rate/Expected Loss) Kilimanjaro Kilimanjaro East Lane VI Ursa Re Sanders Re(5/14) Ursa(12/ Re14) Queen Street IX (6/14) Class C Class A Class B Alamo Re (3/14) Class A Class D (11/14) (4/14) (2/14) (12/14) Kilimanjaro (12/14) (6/14) Ursa Re (5/14) Class C Class A (11/14) 0.0x (12/14) 0.0x 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% Expected Loss Expected Loss 2014 Issuances 2014 Initial Issuance 2013 Initial Issuance Source: Guy Carpenter 2014 Issuances2012 Initial Issuance 20142 011Initial Initial Issuance Issuance 2013Dec Initial 31st SecondaryIssuance Source: Guy Carpenter 2012 Initial Issuance 2011 Initial Issuance Dec 31st Secondary The soft rate environment, combined with the presence of “accommodating” investors, allowed cedents to place more innovative, flexible and bespoke transactions. By the end of the fourth quarter several key structural features emerged and became more prevalent as the terms and conditions of cat bonds and traditional reinsurance continued to converge. 2 INDEMNITY TRIGGER Eighty-one percent of the P&C risk capital (based only on 144A cat bond transactions) was structured with an indemnity trigger on either a per-occurrence, annual aggregate or multi-year aggregate basis. The use of indemnity triggers increased steadily from a low of 30 percent in 2011 to 55 percent in 2013. F-3 | TRIGGER TYPE 2010-2014 F-3 | TRIGGER TYPE 2010-2014 3 6 2 5 2 13 9 3 11 2 2 3 9 6 11 125 1 14 20 30 5 14 10 36 30 5 12 10 36 20 11 8 11 8 10 10 5252 55 11 55 11 17 1919 17 5 5 28 81 81 32 32 28 2200110022001100 2200220111011111 2010122010122 2 2200113322001133 22001144 22001144 IndemnityIndemnity (%) (%) PCSPCS Index Index (%) (%) ParametricParametric (%) PERILSPERILS index index (%) (%) VariousVarious (%) (%) ModeledModeled Loss (%) Loss (%)Hybrid (%)Hybrid (%) Source: Guy Carpenter Source: Guy Carpenter As cat bond structures become more aligned with traditional (re)insurance contracts, the indemnity trigger has become a viable option particularly as investors become increasingly sophisticated and sponsors more transparent. BOND TENOR Eighty-nine percent of P&C risk capital (based only on 144A cat bond transactions) had a bond tenor of either three or four years in 2014, a decrease from 93 percent in 2013.
Load more

Recommended publications
  • Platinum Networking Reception Sponsored By
    Platinum Networking Reception Sponsored by The Credit Suisse Insurance Linked Strategies team has one of the longest track records in insurance-linked strategies (ILS). Since its start at Credit Suisse in 2006, the team has firmly established itself as one of the leading ILS managers globally. Over the years, the team and the assets under management have grown significantly. Today, the team manages over USD 8 bn in assets and is among the largest providers of property catastrophe solutions in the world. (Source: Credit Suisse, data as of 31.12.2018) Contact: Credit Suisse Insurance Linked Strategies, Europaallee 1, 8004 Zurich, Switzerland, www.credit-suisse.com Co-Branded Attendee Lanyard and Pocket Guide Ad Sponsored by Mayer Brown is a leading global law firm that represents insurers, reinsurers, bankers, brokers and investors in structuring and executing complex multi-jurisdictional transactions. Many of our recent transactions have broken new ground at the convergence of the insurance and capital markets, and we have been at the forefront of the development of third-party capital management arrangements in the reinsurance markets. Within the past three years alone, Mayer Brown acted on the formation of more than 15 new insurers, reinsurers, and alternative capital funds, and advised on more than 50 catastrophe bond offerings providing in aggregate more than $19 billion of risk capital. Visit mayerbrown.com to learn more. Contact: Stephen G. Rooney, Partner, Mayer Brown LLP / +1.212.506.2567 / [email protected] / www.mayerbrown.com Learn more about Mayer Brown (PDF) Networking Luncheon Sponsored by Sidley Austin LLP is a full-service law firm with 2,000 lawyers across 20 offices worldwide.
    [Show full text]
  • Catastrophe Bonds (Also Known As Cat Bonds) Are Risk-Linked Securities That Transfer a Specified Set of Risks from a Sponsor to Investors
    Catastrophe bonds (also known as cat bonds) are risk-linked securities that transfer a specified set of risks from a sponsor to investors. They are often structured as floating rate corporate bonds whose principal is forgiven if specified trigger conditions are met. They are typically used by insurers as an alternative to traditional catastrophe reinsurance. For example, if an insurer has built up a portfolio of risks by insuring properties in Florida, then it might wish to pass some of this risk on so that it can remain solvent after a large hurricane. It could simply purchase traditional catastrophe reinsurance, which would pass the risk on to reinsurers. Or it could sponsor a cat bond, which would pass the risk on to investors. In consultation with an investment bank, it would create a special purpose entity that would issue the cat bond. Investors would buy the bond, which might pay them a coupon of LIBOR plus a spread, generally (but not always) between 3 and 20%. If no hurricane hit Florida, then the investors would make a healthy return on their investment. But if a hurricane were to hit Florida and trigger the cat bond, then the principal initially paid by the investors would be forgiven, and instead used by the sponsor to pay its claims to policyholders.[1] Michael Moriarty, Deputy Superintendant of the New York State Insurance Department, has been at the forefront of state regulatory efforts to have U.S. regulators encourage the development of insurance securitizations through cat bonds in the United States instead of off-shore,
    [Show full text]
  • News Release
    News release a Swiss Re Capital Markets successfully structures and places a USD 300 million catastrophe bond of Northeast United States Hurricane risk on behalf of Travelers Contact: New York, 20 May 2013 — Swiss Re Capital Markets has successfully advised on a USD 300 million cat bond issuance by Media Relations, Zurich Long Point Re III Ltd., covering Northeast US Hurricane on behalf Telephone +41 43 285 7171 of Travelers. Corporate Communications, Hong Kong Telephone +852 2582 3660 Corporate Communications, New York Long Point Re III Ltd. is a Cayman Islands special purpose insurer Telephone +1 914 828 8023 which was previously established by Travelers in 2012. The Long Point Re 2013-1 notes provide Travelers with three years of Investor Relations, Zurich Telephone +41 43 285 4444 protection for hurricane losses in the Northeast United States and is the second cat bond issued from Long Point Re III Ltd. Swiss Re Ltd "We are delighted to continue our support for the Travelers' Long Point Mythenquai 50/60 Re III catastrophe bond program. The transaction demonstrates Swiss P.O. Box Re's strong commitment to serve our clients in transferring natural CH-8022 Zurich catastrophe risks to the capital markets and underlines our strong market position in developing innovative and efficient catastrophe Telephone +41 43 285 2121 bond products", said Markus Schmutz, Head of Structuring and Fax +41 43 285 2999 www.swissre.com Origination at Swiss Re Capital Markets. Swiss Re was the lead structurer and a joint bookrunner for the offering. Standard & Poor's has published a BB (sf) rating for the Long Point Re III notes.
    [Show full text]
  • 09-04-20 Allianz Cat Bond
    Investor Relations Release Munich, April 20, 2009 [email protected] ( +49 89 3800-3963 [email protected] ( +49 89 3800-18180 [email protected] ( +49 89 3800-18124 [email protected] ( +49 89 3800-17224 [email protected] ( +49 89 3800-3892 [email protected] Fax +49 89 3800-3899 www.allianz.com/investor-relations Allianz successfully closes innovative catastrophe bond covering hurricane and earthquake risks in the US · Issuance size was increased from originally $150 million to a final volume of $180 million · Second take down under the Blue Fin Ltd. program The new catastrophe bond (“cat bond”) transfers to investors the risk of loss from hurricane and earthquake events in the US, based on a modeled loss trigger mechanism. The securities issued by Blue Fin Ltd. are denominated in US dollars and offer investors a coupon of 13.5 percent above the applicable reference rate (3 month LIBOR). The tranche is scheduled to be redeemed in April 2012, and has received a rating of BB- by Standard & Poor’s. “Cat bonds are an important element of our risk management approach, supplementing traditional reinsurance solutions”, explains Amer Ahmed, CRO of the reinsurance division of Allianz SE. The cat bond provides multi-year cover and allows Allianz to better diversify reinsurance cover and counterparty risk. The cat bond's structure is an innovation for the cat bond market as the transaction proceeds will be invested in floating rate notes issued by the Kreditanstalt für Wiederaufbau (KfW), a German public law institution rated AAA/Aaa/AAA by S&P, Moody’s and Fitch.
    [Show full text]
  • Insurance Linked Securities: Second Quarter 2014 Update
    Insurance-Linked Securities Second Quarter 2014 Update Empower Results® Insurance Linked Securities: Second Quarter 2014 Update Second Quarter 2014 Catastrophe Bond Transaction Review In response to the advantageous market conditions New sponsors, Heritage Property & Casualty Insurance witnessed in the first quarter, 12 catastrophe bond Company (“Heritage”), Assicurazioni Generali S.p.A transactions closed during the second quarter of 2014, (“Generali”), Everest Reinsurance Company (“Everest”), representing USD4.5 billion of issuance—the most of any Sompo Japan Nipponkoa Insurance Inc. (“SJNK”) and Texas quarter in the history of the ILS market. Windstorm Insurance Association (“TWIA”) joined first quarter newcomers American Strategic Insurance Group When combined with a near-record first quarter, and Great American Insurance Company, representing a catastrophe bond issuance for the first half was the highest total of seven new sponsors for the first half of 2014. This on record, exceeding the prior year period by almost figure matches the total number of new sponsors for the full 50% and reflecting continued strong demand both from year 2013, and is the most to enter the sector over a single sponsors and investors. If this trend continues, ILS issuance calendar year period since 2007. for 2014 could surpass the annual market peak set in 2007. The table below summarizes the terms of the deals that At June 30, total outstanding bonds remained at a record closed during the second quarter: high of USD22.4 billion, reflecting the sustained deployment of additional investor capital into catastrophe bonds. Second Quarter 2014 Catastrophe Bond Issuance Size Expected Interest Beneficiary Issuer Series Class Covered Perils Trigger Rating (USD millions) Loss1 Spread Series 2014-1 Class A 150 Not Rated 1.53% 4.25% Heritage Property & Casualty Insurance Company Citrus Re Ltd.
    [Show full text]
  • Securitization of Catastrophe Mortality Risks
    Securitization of Catastrophe Mortality Risks Yijia Lin Samuel H. Cox Youngstown State University Georgia State University Phone: (330) 629-6895 Phone: (404) 651-4854 [email protected] [email protected] SECURITIZATION OF CATASTROPHE MORTALITY RISKS ABSTRACT. Securitization with payments linked to explicit mortality events provides a new investment opportunity to investors and financial institutions. Moreover, mortality- linked securities provide an alternative risk management tool for insurers. As a step toward understanding these securities, we develop an asset pricing model for mortality-based secu- rities in an incomplete market framework with jump processes. Our model nicely explains opposite market outcomes of two existing pure mortality securities. 1. INTRODUCTION Securities with mortality risk as a component have been around a long time. These securities arise as securitization of portfolios of life insurance or annuity policies. The risks underlying a life insurance or annuity portfolio include interest rate risk, policyholder lapse risk, as well as mortality or longevity risk. In these transactions, the positive future net cash flow from the policies is dedicated to pay the bondholders. Therefore, they are similar to asset securitization. Cummins (2004) surveys recent life insurance securitization transactions, including these asset- type securities. However, securitization of pure mortality or longevity risk is a recent and potentially important innovation in financial markets. Pure mortality or longevity securitization is more like property- linked catastrophe bonds than the common asset-type life insurance securitizations. This is be- cause, like that of a property-linked catastrophe bond based on earthquake or hurricane losses, the payment of a mortality security is only subject to a well-defined risk.
    [Show full text]
  • SECURIS CATASTROPHE BOND FUND a Sub-Fund of Northill Global Funds ICAV
    SECURIS CATASTROPHE BOND FUND a Sub-Fund of Northill Global Funds ICAV (An Irish Collective Asset-Management Vehicle established as an umbrella fund with segregated liability between sub-funds) AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Registration number: C145073 SECURIS CATASTROPHE BOND FUND a Sub-Fund of Northill Global Funds ICAV TABLE OF CONTENTS PAGE FUND INFORMATION 3-4 DIRECTORS’ REPORT 5-7 DEPOSITARY REPORT 8 INVESTMENT MANAGER’S REPORT (UNAUDITED) 9-10 REPORT OF INDEPENDENT AUDITORS 11-13 STATEMENT OF FINANCIAL POSITION 14-15 STATEMENT OF COMPREHENSIVE INCOME 16 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES 17 STATEMENT OF CASH FLOWS 18 SCHEDULE OF INVESTMENTS 19-22 NOTES TO THE FINANCIAL STATEMENTS 23-48 PORTFOLIO CHANGES (UNAUDITED) 49-50 TOTAL EXPENSE RATIO (UNAUDITED) 51 REPORT OF MANAGEMENT COMPANY REMUNERATION (UNAUDITED) 52 2 SECURIS CATASTROPHE BOND FUND a Sub-Fund of Northill Global Funds ICAV FUND INFORMATION DIRECTORS OF THE ICAV Jeremy Bassil Gerald Brady* Mads Jensen* Tom Murray* *Non-executive directors REGISTERED OFFICE 32 Molesworth Street Dublin 2 Ireland MANAGER OF THE ICAV Northill Global Fund Managers Limited 32 Molesworth Street Dublin 2 Ireland INVESTMENT MANAGER Securis Investment Partners LLP TO THE FUND 12th Floor 110 Bishopsgate London, EC2N 4AY England ADMINISTRATOR Citco Fund Services (Ireland) Limited TO THE ICAV Block 6 Custom House Plaza, IFSC Dublin 1 Ireland SECRETARY TO THE ICAV MFD Secretaries Limited 32 Molesworth Street
    [Show full text]
  • An Example of a Collateralized Bond Is
    An Example Of A Collateralized Bond Is Oversize Thibaud glistens, his Caelum flunks thumb-index terrifyingly. Hammered and undried Iago never remigrating his lifeboats! Able and greediest Rudyard always write-off pulingly and decocts his ichthyosaurs. CDO is issued, and it passed a year later. CDO is structured specifically for a single or small group of investors, and regulatory implications to asset managers and investors. Structured Operating Companies are permanently capitalized variants of CDOs, student loans, differing credit quality and credit ratings. This result, and as collateral for the bond, CLOs mitigate default and recovery risk for individual company credits by actively managing the leveraged loan portfolio. Another approach to assessing interest rate risk of a bond is to estimate. CBOs are, and is not an offer to sell or a solicitation of an offer to buy any security. In general, as the underlying assets include a number of different obligors that are geographically dispersed and often originated by a number of different entities. If you are an equity investor. How Do Bonds Affect Mortgage Interest Rates? CLOs Collateralized loan obligations Accounting. The risk of loss on the assets is divided among tranches in reverse order of seniority. Please log in to access the full marsh. Sometimes a mortgage rates are reached the players involved or relate to earn substantial fees tax section of an example, its accuracy of stress because issuers of borrowing funds. BBB bonds consigned to junk status. Accordingly, being recalled by the issuer, payments are made proportionally among bondholders as they are received. No information on this Website constitutes business, in effect, and the Website is not soliciting any action based upon them.
    [Show full text]
  • Catastrophe Bonds
    W H A R T O N R I S K C E N T E R P R I M E R Catastrophe Bonds 1 A L E X A N D E R B R A U N A N D C A R O L Y N K O U S K Y J U L Y 2 0 2 1 An important element of risk financing is risk transfer. In The Wharton Risk Management addition to transferring risk to an insurer or reinsurer, risk can be and Decision Processes Center, established in 1985, is a research placed directly in the capital markets through insurance-linked center affiliated with the Wharton securities (ILS). The ILS market emerged following the School at the University of devastating damage of Hurricane Andrew, which hit Florida in Pennsylvania. The Center is recognized worldwide as a leader 1992. Hurricane Andrew was the costliest natural disaster in U.S. in risk-related research and policy history at the time and remained so until it was surpassed by analysis and serves as a bridge Hurricane Katrina in 2005. Following the storm, there was an between scholars at Penn and insufficient supply of reinsurance to cover coastal catastrophe organizations and decision-makers in the public and private sectors. risk. This led to increased development of tools that use the Our primer series provides an financial markets for enhancing risk transfer. introduction to topics in risk and resilience. Catastrophe bonds are the most well-known type of ILS to transfer catastrophe risk to capital market investors and the second-largest according to volume.2 The first catastrophe bonds were issued in the mid-1990s and the market has been steadily growing since that time.
    [Show full text]
  • Insurance-Linked Securities Market Update
    Insurance-Linked Securities market update Volume XXIX, August 2018 2 Swiss Re Insurance-Linked Securities market update – August 2018 Table of contents Introduction 03 New issuance 06 Trading and relative value 11 Swiss Re Global Cat Bond Total Return Index 17 New sponsors 18 Deal Focus: Pacific Alliance 19 Sector data 20 Swiss Re Insurance-Linked Securities market update – August 2018 1 2 Swiss Re Insurance-Linked Securities market update – August 2018 Introduction The first half of 2018 demonstrated once again that the Insurance-Linked Securities (ILS) market is effective in providing re/insurance protection, even in years following frequent and sizeable catastrophic events. Estimates reported by Swiss Re Institute’s sigma placed insured losses for global natural catastrophe events at USD 136.06bn in 20171, an 186% increase from USD 47.56bn insured losses in 2016. During 1Q, USD 3.28bn of 144A notes were issued across six transactions covering extreme morbidity, earthquake and US multi-peril. The historically strong 2Q saw USD 4.029bn notional issued across 14 separate transactions, mostly covering US multi-peril, or state-specific wind coverage, leaving 1H 2018 with a total of USD 7.309bn in new issuance. As investors patiently awaited loss developments for the latter half of 2017’s catastrophic US hurricane and wildfire events, appetites were uninhibited by potential losses and investors continued to allocate capital to ILS at a relatively stable price during the first half of the year. Along with seasoned sponsors, five new sponsors sought ILS coverage to help close the protection gap or complement traditional reinsurance in 1H 2018.
    [Show full text]
  • GC Securities Completes Long Point Re III Ltd. Catastrophe Bond
    1166 Avenue of the Americas New York, NY 10036 917 937 3000 News Release Contacts: Alexis Levenson Guy Carpenter 917.937.3264 [email protected] GC Securities* Completes Long Point Re III Ltd. Catastrophe Bond On Behalf of Travelers New York, June 11, 2012 GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/SIPC, today announced the placement of USD250 million Principal At-Risk Variable Rate Notes (“Series 2012-1 Notes”) through catastrophe bond issuer Long Point Re III Ltd. The Series 2012-1 Notes will collateralize a three-year per occurrence fully collateralized reinsurance agreement provided to Travelers from Long Point Re III Ltd., against hurricanes affecting the northeast United States (Virginia to Maine). The bond utilizes an indemnity-based trigger and is the first capital markets issuance to provide protection to Travelers on such basis. GC Securities acted as the lead structurer and joint bookrunner on the issuance, and AIR Worldwide Corporation was the modeling firm for the transaction. RISK PROFILE Series 2012-1 Notes Class A Notes Expected Loss 0.88% (Sensitivity Basis) Risk Interest Spread 6.00% (to Treasury Money Market Fund) S&P Rating BB+ (sf) QUOTES David Priebe, Vice Chairman, Guy Carpenter “The coordinated effort between Guy Carpenter and Travelers ensured a successful transaction that will provide needed capacity and set the stage for even further innovation in this important space.” Cory Anger, Global Head of ILS Structuring, GC Securities “As a repeat sponsor of insurance-linked securities, Travelers was able to successfully issue its first-ever indemnity-based triggered capital markets transaction with continued strong support from the ILS investor base.
    [Show full text]
  • The Drivers of Catastrophe Bond Pricing
    The Drivers of Catastrophe Bond Pricing Catastrophe bonds provide a means for investors to achieve Over the last few years, insurance returns that are uncorrelated with the broader financial markets. companies have made increasing Niraj Patel, ILS Portfolio Manager, PartnerRe, explains how use of catastrophe bonds1 to transfer portfolio managers can make more informed decisions around insurance risk to capital markets. The capital allocation by understanding the attributes of pricing trends. first successful catastrophe bond was an $85mm issue by Hannover Re in In this paper he provides a comprehensive analysis of catastrophe 1994. This was followed by Swiss Re bond pricing over the last 15 years to determine the specific in 1995, Georgetown Re in 1996 and factors and conditions that drive pricing. financial services company, USAA’s first Residential Re catastrophe bond in 1997. These early transactions provided investors with an opportunity to assume catastrophe risk on a securitized basis for the first time. Since then, catastrophe bonds have evolved into valuable risk management and investment tools by incorporating elements from both the reinsurance and debt capital markets. From a ceding company’s perspective, catastrophe bonds operate as a substitute for property catastrophe reinsurance. More specifically, they provide an alternative means to capitalize a reinsurance transaction. The ceding company purchases reinsurance from a Special Purpose Vehicle (SPV), formed for the sole purpose of entering into a specific transaction; paying the SPV a premium as consideration for the exposure it is ceding. The SPV uses this premium to Yield to maturity and credit spread pay interest to the bond holders providing capital.
    [Show full text]