Here we review recent GC Capital Ideas posts on developments in China’s insurance regulatory system.
Archive for the ‘Property’ Category
Fiscal constraints are increasing across many developed and emerging economies amid growing catastrophic loss potential brought on by the geopolitical climate, demographic trends and global climate change. As a result, heads of government, international trade organizations and private sector risk bearers are increasing their calls to reexamine the roles and responsibilities of society to better manage these complicated risks.
In southeast Texas, a significant flood event has affected the Greater Houston Metro area as well as areas north and west. Heavy and persistent rainfall has produced catastrophic flooding, enabled by a slow-moving upper low and frontal boundary, together with available moisture. Record daily rainfall amounts were observed at Houston International Airport, with amounts of 15 to 18 inches reported north and west of the Houston area. National Weather Service flood and flash flood watches and warnings remain active for areas of the Southern Plains and Lower Mississippi Valley and some additional rainfall is expected with thunderstorms. Media reports indicate at least seven fatalities and first responders expect this number to rise. Reports indicate that over 1,000 homes have been inundated. Texas Governor Greg Abbott has declared a state of disaster in nine counties, enabling state resources to be used to respond to the emergency, according to media reports. It will take some time to fully assess the scope and severity of impacts of this event and our thoughts are with those lost and directly affected by this event.
A Mw 7.8 earthquake struck the Esmeralda Province near the west coast of northern Ecuador on April 16, according to the U.S. Geological Survey (USGS). The quake occurred at 6:58 PM local time (23:58 UTC) about 17 miles (27 km) south-southeast of Muisne and about 106 miles (170 km) west-northwest of Quito, the capital of Ecuador.
The recent 2015 reinsurance renewals in this area demonstrated further expansion in the manner and means by which these insurance providers utilize private-sector capital to support their businesses. Traditional reinsurance remains a core component of most residual market risk financing programs. Typically these risk financing plans will also rely on retained profit, assessments and debt facilities in concert with the various forms of reinsurance to manage their exposures. The utilization of alternative risk financing capital through catastrophe bonds and/or collateralized reinsurance continues to grow with eight of 12 facilities that utilize traditional reinsurance also accessing risk transfer capacity through catastrophe bonds and/or collateralized reinsurance to help manage their loss exposures. The chart below details the increasingly diverse set of risk financing approaches employed by 11 coastal markets.
The US residual property insurance market segment is comprised of Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans and two state run insurance companies - Florida Citizens Property Insurance Company (Florida Citizens) and Louisiana Citizens Property Insurance Corporation (Louisiana Citizens). These insurance facilities grew out of the civil strife in the 1960s to ensure continued access to insurance in urban areas. Over time they have evolved and their mandate has grown beyond their urban focus. Today these facilities are significant providers of some of the most wind- and earthquake-exposed property insurance in the country.
The continued flow of new capital into the (re)insurance industry constitutes the largest change to the sector’s capital structure in recent memory. New capital has entered the market through investments in insurance-linked securities (ILS) funds, sidecars, hedge fund-backed reinsurance companies and collateralized reinsurance vehicles. Investors have increasingly been attracted to low correlation returns from catastrophe risk relative to traditional capital markets risks and the attractive yield for the measured (re)insurance risk relative to other investments, particularly in the current low inflation, low yield era.
In addition to internal risk management, models are typically used in risk transfer negotiations. Both traditional and alternative risk markets require extensive analysis of portfolios when considering risk transfer. Sharing a portfolio’s standardized model output is critical to imparting the loss potential of a particular portfolio from which risk-capital can be unlocked to support the risk financing needs of a reinsurance buyer. Using technology is critical when partnering governments with the private sector. Whether partnering with developed or emerging economies, these tools bring together the risk knowledge and historical data of the public sector with risk management techniques of the insurance industry. The result is an enhanced understanding of risk that provides stability and attracts partners.
Public sector-related data can be expansive, containing census data, property risk characteristics, historical loss information, risk rating matrices and natural hazard event scientific tracking. In order to facilitate packaging the sometimes unwieldy data in a way that is useful for risk decision making, utilizing outside resources to improve data transparency can be valuable. Public sector resources devoted to building tools that measure risks that are perceived as “uninsurable” can unlock private sector funding.