The use of capital markets-based risk transfer capacity by public entities, insurers of last resort, and compulsory catastrophe pools and disaster facilities continues to expand. These deals included Turkey’s Turkish Catastrophe Insurance Pool, Mexico’s FONDEN and New Zealand’s EQC. Most large U.S. insurers of last resort, such as CEA, Citizens (FL), Citizens (LA), North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association (NCJUA/NCIUA), and Texas Windstorm Insurance Association, are utilizing capital markets capacity including collateralized reinsurance and catastrophe bonds.
Posts Tagged ‘catastrophe bonds’
The evolution of dedicated sector capital is presented below. Guy Carpenter estimates dedicated sector capital remained at near record levels having risen to approximately USD400 billion at year-end 2014 from traditional rated markets and all sources of alternative capital including sidecars, collateralized reinsurance vehicles and catastrophe bonds.
Guy Carpenter reports reinsurance pricing fell at the January 1, 2015 renewals in many segments, affecting almost all lines of business and geographies, continuing recent renewal trends.
GC Securities* Completes First Ever Swiss Franc-Denominated Private Catastrophe Bond (“Gurten”) Benefitting Gebäudeversicherung Bern
GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/NFA/SIPC, today announced the Regulation S placement of Principal At-Risk Variable Rate Notes (”Notes”) due January 15, 2016, with notional principal at CHF70,000,000 through Kaith Re Ltd., to benefit Gebäudeversicherung Bern (”GVB”). This is the first ever Swiss franc-denominated catastrophe bond and the first time that GVB has utilized the cat bond market to manage its risks.
New cedents continued to enter the catastrophe bond space in 2014. Seven new sponsors (American Strategic Insurance Group, Everest Re, Generali, Great American, Heritage, Sompo Japan Nipponkoa and Texas Windstorm Insurance Association) utilized the 144A catastrophe bond market for the first time in the first half of 2014. Additionally, several new sponsors entered the private catastrophe bond market. They included, but were not limited to, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and Achmea.
The growth in the utilization of private catastrophe bonds continues at similar rates. Private catastrophe bonds provide the same benefits as 144A catastrophe bonds, including fully collateralized, multi-year protection, but private bonds are more cost-effective and allow for more streamlined documentation given the typically smaller limit size of each transaction. The figure below shows the evolution of private catastrophe bonds based both on deal count and total aggregate limit placed. In an environment of growing demand for capital markets capacity, GC Securities*, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC, formulized its private catastrophe bond approach in June 2013 with development of the Tensai private catastrophe bond program in conjunction with Tokio Millenium Solutions’ Shima Re Ltd. facility.
The influx of new capital into the reinsurance industry constitutes the largest change to the sector’s capital structure in recent memory. Over the past 24 months, approximately USD20 billion of new capital has entered the market through investments in insurance linked securities (ILS), funds and sidecars as well as the formation of hedge fund-related reinsurance companies and collateralized reinsurance vehicles.
During the past twelve months, capital has continued to flow into the reinsurance markets in the form of both insurance-linked securities (ILS) and collateralized reinsurance transactions. This report examines the growth in the ILS market during the past year and some of the important evolutionary elements of catastrophe bond structure and risk transfer. We also explore how the use of capital markets-based capacity provides cost savings for public entities by helping them build surplus, reduce public debt and limit the risk that natural perils can pose to the state’s balance sheet. As collateralized markets continue to increase in importance as an alternative to both traditional reinsurance and ILS, Guy Carpenter has taken an active role in analyzing counterparty risk and developing specific structures and strategies to manage this risk. This report also provides an overview of the manner in which Guy Carpenter assists its clients in managing counterparty risk and limiting credit exposure.