- Global Catastrophe Review, 2013
- Chart: Global Property Catastrophe ROL Index
- January 2014 Renewal Report: Capacity: Evolution, Innovation and Opportunity
The impact the capital markets have had on the property catastrophe reinsurance space is undeniable. Analyzing 2013 market activity, it is also undeniable that much of the movement the market witnessed is as much driven by traditional reinsurers’ changing behaviors. While companies buying catastrophe coverage benefitted, across product type and geography, from collateralized capacity in the market, deployment of this capacity has been targeted.
As with Europe, 2013 was a year of flood in the Americas, with notable events in Alberta, Toronto and Colorado. The flood event in the Calgary, Alberta area of Canada resulted in estimated insured losses of around USD2 billion, with economic losses of USD4.8 billion (1). This event, combined with flash-flooding in Toronto, Ontario in July, meant Canada experienced its most expensive insured catastrophe loss year on record.
Global Catastrophe Review, 2013: 2013 provided a respite for the (re)insurance industry following above-average losses in 2011 and 2012, with insured losses from natural catastrophes and man-made disasters estimated at around USD40 billion, according to Guy Carpenter. This is considerably less than the ten-year average loss of approximately USD60 billion and well below the most significant years of 2005 and 2011. This can be partly attributed to the unusually quiet 2013 Atlantic tropical season.
Chart: Top Ten Catastrophe Bond Transactions: The chart ranks deals in 2013, as compiled by GC Securities*, a division of MMC Securities Corporation.
January 2014 Renewal Report: Capacity: Evolution, Innovation and Opportunity: The January 1, 2014 renewal saw rates on line fall significantly in nearly all regions and business segments as relatively low loss experiences, strong balance sheets and an influx of capital spurred competition and innovation in the reinsurance market. This culminated in a marketplace focused on meeting individual client needs as reinsurers reacted to the challenge posed by alternative markets and alternative markets, in turn, sought to deliver unique solutions. Insurers also looked to capitalize by adapting their buying strategies and prioritizing their risk transfer goals.
Chart: Rate Movements by Business Segment: Reports rate movements at January 1, 2014.
Chart: Global Property Catastrophe ROL Index: The Guy Carpenter Global Property Catastrophe Rate on Line index is presented for 1990 through 2014. The index fell by 11 percent at January 1, 2014.
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Convergence Capital’s Impact on the Reinsurance Market: The growth in convergence capital has resulted in ILS catastrophe risk pricing decoupling from price expectations in the traditional reinsurance market, with some ILS products now offering the most competitive terms for reinsurance buyers. Strong appetite for U.S. hurricane catastrophe bonds, for example, has tightened spreads in the secondary market by an average of approximately 45 percent on a weighted notional basis since issuance in 2012. Despite the significant decrease in ILS pricing over the last 12 months, investor demand continues to be robust. Indeed, projections by GC Securities indicate that the catastrophe bond market alone could reach USD23 billion by the end of 2016.
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., 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. (MMCSEL), 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 Corp., 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.
Guy Carpenter & Company has announced the launch of its Cyber Solutions Specialty Practice, which focuses on the development and delivery of innovative cyber reinsurance solutions to address the rapidly increasing risks associated with cyber security. The practice builds upon Guy Carpenter’s market leadership position and years of experience and market intelligence in this area, and through its team of highly seasoned professionals, helps clients effectively manage their cyber portfolios and grow profitably.
Asia and Australasia also received their share of both natural and man-made catastrophes in 2013. One of the most costly man-made events occurred in China after a major fire hit a large microchip factory in September. The blaze caused significant damage to the SK Hynix-owned facility in the city of Wuxi, with reports saying the cost to the (re)insurance sector is expected to range between USD900 million and USD1 billion. The incident represents the most expensive single-risk loss on record to occur in China.
2013 will be remembered in Europe in part as the year of the flood, with the worst flood event affecting several Central European countries in June. Estimated insured losses from this event were around USD4.1 billion, with economic losses of around USD18 billion (1). Persistent heavy rain caused the Vltava, Elbe and Danube Rivers to overflow their banks and in some cases breach flood defenses. Countries affected included Germany, the Czech Republic, Slovakia, Austria, Switzerland, Hungary and Poland.
2013 provided a respite for the (re)insurance industry following above-average losses in 2011 and 2012, with insured losses from natural catastrophes and man-made disasters estimated at around USD40 billion, according to Guy Carpenter & Company (see Figure 1). This is considerably less than the ten-year average loss of approximately USD60 billion and well below the most significant years of 2005 and 2011 (see Figure 2 (Inflation adjusted)). This can be partly attributed to the unusually quiet 2013 Atlantic tropical season. About 47 percent of insured losses in 2013 were reported in the Americas, 31 percent in Europe and 20 percent in Asia and Australasia (see Figure 3). Continue reading…
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