Catastrophe Bonds: 2011 Review - Activity, Risk Capital Outstanding: 2011 was a year of significant activity for catastrophe risk investors and sponsors. As of December 9, 2011, the total 144A property catastrophe bond issuance for the year stood at USD3.86 billion, which is 84 percent of the USD4.6 billion issued during the 2010 calendar year. By the end of 2011, total issuance is expected to exceed USD4.0 billion, and a deep pipeline of transactions exists for the first half of 2012 and beyond.
Industry Loss Warranty Market: The industry loss warranty (ILW) market has seen a robust start to the 2012 renewal season with all major clients having bound significant limits in recent days/weeks. The ILW market tends to react to shortages of capacities in other areas of the market, mostly the ultimate net loss (UNL) retro market. The UNL retro market has been relatively dysfunctional, and most client programs are taking longer to place with a potential for short placement. The wider ILW market has therefore not seen the amount of activity normally associated with this time of year, and clients will look to ILWs in the coming days to bolster any shortfalls in coverage. Some markets have reported a drop in activity compared to last renewal as a result of this delay in the placement process.
Capital Management: Reinsurance Valuations at a Long-Term Low: The challenging macroeconomic environment of subdued growth and low interest rates meant the reinsurance sector ended 2011 trading near 20-year lows. As Figure 1 illustrates, the average price to book ratio for the sector of 0.893 is just greater than one and a half standard deviations down from the 20-year average of 1.32. The sovereign debt crisis, threat of a double-dip recession, heavy non-peak zone catastrophe losses during 2011 and concerns about reserve adequacy are among the factors contributing to volatility and low valuations. Additionally, despite the heavy losses incurred during 2011, many reinsurers are still perceived to have excess capital relative to projected earnings and top-line growth.
Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of enterprise risk management to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.
Property & Casualty M&A Outlook for 2012: M&A Drivers Going Forward: Guy Carpenter sees several potential merger and acquisitions (M&A) drivers in 2012 and beyond.
Most Popular Keyword: periodic payment orders
And, you may have missed…
Terrorism: Unstable Territories, Implications of Middle East and North Africa Unrest and Future Risks: It is interesting to note that Maplecroft’s TRI has Somalia and Yemen showing an increasing trend of terrorist activity, as both countries are deeply unstable and some ungoverned regions have become havens for militant groups. As noted above, AQAP in Yemen is now considered to be one of the most significant risks to the Western world. The rising terrorist threat emanating from Somalia, meanwhile, means the country now tops Maplecroft’s TRI.