Archive for February, 2016



February 29th, 2016

The Emerging Risks Quandary, Anticipating Threats Hidden in Plain Sight

Posted at 1:00 AM ET

Marsh & McLennan Companies’ Global Risk Center has published a new report, The Emerging Risks Quandary. Many companies struggle to articulate the precise relevance of global and emerging risks to their business, and are poorly organized to make timely decisions. This report explores what impedes corporate efforts and sets out how companies can blend creativity and pragmatism to look beyond predictable and controllable risks to complex uncertainties that have the potential to generate more than mere volatility in corporate earnings.

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February 26th, 2016

Week’s Top Stories: February 20 - 26, 2016

Posted at 8:00 AM ET

2015 Private Cat Bond Placements: The private market saw 20 private cat bond transactions in 2015 representing USD 903.94 million of risk capital transferred to capital market investors.

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Partnerships: The Way To Public Sector Risk Financing: The impact that catastrophic loss can have on the fiscal position and tax base of government entities across the globe is significant. Impacted areas can take decades to recover when economic recovery is limited. Approximately 73 percent or USD 2.7 trillion of natural catastrophe losses globally between 1970 and 2014 were uninsured. The creation of private sector pre-financing options will not only relieve the burden on taxpayers and in turn, public finances, but will migrate the management of these catastrophes to insurance and reinsurance companies where claims handling and risk management is core to their operations. This allows local economies to come back on line more quickly.

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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 (ERM) 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.

Read the article>>

 

Guy Carpenter Reports Stable Capital at January 1, 2016 Renewals: Guy Carpenter & Company reports that overall capital levels dedicated to reinsurance have stabilized, showing no growth for the first time in several years.  In a highly competitive environment, companies assessed broader opportunities and the rate of incoming capital slowed. However, moderate loss experience kept capacity at abundant levels for the January 1, 2016 renewals. The continued scarcity of costly catastrophe losses and more than adequate capacity led to reinsurance pricing reductions, although there are signs the rate of descent is slowing as compared to 2015.

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Managing Catastrophe Model Uncertainty, Issues and Challenges: Here we repeat our series authored by John Major, which focuses on the issues and challenges in managing catastrophe model uncertainty.

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And, You May Have Missed…

New Technologies, New Liability Risks and Emerging Product Exposure: Risk is a major barrier to innovation. Taking a risk, however, is almost always the first step in any type of progress. The productivity of the global economy depends on companies that are willing to find new and better ways of doing things despite the potential perils involved. If they start to be ruled by fear of liability, our global development could be in jeopardy. By helping businesses manage the risks associated with product development, (re)insurers play an important role in stimulating innovation and helping our world move forward in positive ways. From the early days of marine exploration, to the first satellite launch, to the development of state-of-the-art technologies, (re)insurers have provided a critical safety net that has supported and encouraged the creative process.

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*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSE L), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

February 25th, 2016

Partnerships: The Way To Public Sector Risk Financing

Posted at 1:00 AM ET

The impact that catastrophic loss can have on the fiscal position and tax base of government entities across the globe is significant. Impacted areas can take decades to recover when economic recovery is limited. Approximately 73 percent or USD 2.7 trillion of natural catastrophe losses globally between 1970 and 2014 were uninsured. The creation of private sector pre-financing options will not only relieve the burden on taxpayers and in turn, public finances, but will migrate the management of these catastrophes to insurance and reinsurance companies where claims handling and risk management is core to their operations. This allows local economies to come back on line more quickly.

Continue reading…

February 24th, 2016

Cat Bond Pricing Dynamics, Fourth Quarter 2015

Posted at 1:00 AM ET

Pricing dynamics in the fourth quarter of 2015 were mixed, with bonds trading in different directions based on the risk level, peril exposure and relative market size rather than the market shifting categorically in one direction across all names. The typical fourth quarter “Dead Cat” market (in which bonds prior to their scheduled redemption date that have little to no remaining modeled risk exposure are still paying their full scheduled coupon) was active. Notably however, the required return for Dead Cat liquidity providers in the fourth quarter of 2015 averaged 255 basis points per annum, whereas in the fourth quarter of 2014 the required return was averaged closer to 220 basis points.

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February 23rd, 2016

2015 Private Cat Bond Placements

Posted at 1:00 AM ET

The private market saw 20 private cat bond transactions in 2015 representing USD 903.94 million of risk capital transferred to capital market investors.

Continue reading…

February 22nd, 2016

Catastrophe Bond: Fourth Quarter Maturities, 2015

Posted at 1:00 AM ET

Three 144A property and casualty (P&C) catastrophe bonds were scheduled to mature in the fourth quarter, representing USD 595 million of risk capital being returned to investors. Of the USD 595 million, USD 100 million of MultiCat Mexico Limited Class C Notes have been extended past the scheduled redemption date of December 4, 2015 as a result of Hurricane Patricia’s impact on the Pacific coast of Mexico in late October 2015. The Class C Notes, which are parametrically triggered based on central pressure observed or interpolated on or within a defined area, are currently awaiting the release of the National Hurricane Center’s Tropical Cyclone Report in order to determine the principal reduction for the Class C Notes. However, the Class A and Class B Notes from MultiCat Mexico Limited did mature at their scheduled redemption date of December 4, 2015.

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February 19th, 2016

Week’s Top Stories: February 13 - 19, 2016

Posted at 8:00 AM ET

Catastrophe Bond Update: Fourth Quarter And Full Year 2015: 144A property and casualty (P&C) catastrophe bond primary issuance levels were uncharacteristically low in the fourth quarter with an aggregate notional of USD 1.425 billion of 144A P&C catastrophe bonds issued benefiting five sponsors. The 2015 full year primary issuance of 144A P&C catastrophe bonds totaled USD 5.917 billion from 25 transactions benefiting 24 sponsors. 144A P&C risk capital outstanding as of December 31, 2015 totaled USD 22.640 billion, which is 0.56 percent lower than 2014’s all-time high in the 144A P&C catastrophe bond market.

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Meeting the Challenges: Catastrophe Modeling: The insurance industry relies to a large extent on catastrophe models to manage catastrophe risk. Regulators and rating agencies recognize this fact by asking companies to justify their modeling approach. The underlying objective of such rules is to encourage companies to have a robust and consistent process to use modeling tools responsibly.

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Guy Carpenter Reports Stable Capital at January 1, 2016 Renewals: Guy Carpenter & Company reports that overall capital levels dedicated to reinsurance have stabilized, showing no growth for the first time in several years.  In a highly competitive environment, companies assessed broader opportunities and the rate of incoming capital slowed. However, moderate loss experience kept capacity at abundant levels for the January 1, 2016 renewals. The continued scarcity of costly catastrophe losses and more than adequate capacity led to reinsurance pricing reductions, although there are signs the rate of descent is slowing as compared to 2015.

Read the article>>

 

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 (ERM) 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.

Read the article>>

 

Chart: Global Property Catastrophe ROL Index 1990 to 2016: The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) index is presented for 1990 through 2016.

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And, You May Have Missed…

New Economics Are Creating New Medicine: Through the Affordable Care Act, many measures are being implemented that are expected to have a positive impact on bending the healthcare cost curve downward in the long term. However, the same act removed annual and lifetime limits for medical insurance claims. As a result, the maximum potential loss from a single individual is a new frontier of risk, with new heights being reached each year. This is both a frequency and severity issue.

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February 18th, 2016

Catastrophe Bond: Fourth Quarter Primary Issuance, Part II

Posted at 1:00 AM ET

Everest Re successfully issued two tranches of Kilimanjaro Re Ltd. Series 2015-1 Notes representing an aggregate principal amount of USD 625 million. The catastrophe bonds provide Everest Re Group, Ltd. with protection against U.S. earthquake and named storm events on a per-occurrence, PCS-reported industry insured index-derived basis. The Class D Notes carry a one-year expected loss of 5.25 percent, based on AIR’s WSST catalog and investors receive an initial interest spread of 9.25 percent per annum (initial price guidance was quoted as 9.00 percent to 9.75 percent). The Class E Notes carry a one-year expected loss of 3.00 percent, based on AIR’s WSST catalog, with investors receiving an initial interest spread of 6.75 percent per annum (initial price guidance was quoted as 6.50 percent to 7.00 percent). The Series 2015-1 Notes represent the third time Everest Re has accessed the capital markets since 2014 with USD 1.575 billion aggregate limit currently outstanding.

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February 17th, 2016

Catastrophe Bond: Fourth Quarter Primary Issuance, Part I

Posted at 1:00 AM ET

After 2015 began with record historical issuance levels in the first quarter, the fourth quarter of 2015 was dramatically different as only USD 1.425 billion of 144A property and casualty (P&C) catastrophe bonds benefiting five sponsors were completed. This represented the second lowest level since 2005 and the lowest level since 2009. One explanation for this development may be that sponsors who would ordinarily have been willing to issue in the fourth quarter of the calendar year may have had the flexibility to delay their issuance to the following first quarter in order to obtain best execution and/or avoid transaction crowding. We view sponsors’ willingness to focus on best execution rather than specific renewal dates (while still important for overall capital planning purposes) as a further sign of the maturity of the insurance-linked securities (ILS) space. The ILS space is perceived as performing in a manner similar to the broader capital markets with their availability of capital throughout the calendar year.

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February 16th, 2016

Catastrophe Bond Update: Fourth Quarter And Full Year 2015

Posted at 1:00 AM ET

144A property and casualty (P&C) catastrophe bond primary issuance levels were uncharacteristically low in the fourth quarter with an aggregate notional of USD 1.425 billion of 144A P&C catastrophe bonds issued benefiting five sponsors. The 2015 full year primary issuance of 144A P&C catastrophe bonds totaled USD 5.917 billion from 25 transactions benefiting 24 sponsors. 144A P&C risk capital outstanding as of December 31, 2015 totaled USD 22.640 billion, which is 0.56 percent lower than 2014’s all-time high in the 144A P&C catastrophe bond market.

Continue reading…