GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/SIPC, today announced the placement of the Series 2013-1 Notes, with notional principal of $175,000,000, through a newly formed catastrophe bond shelf program, Blue Danube II Ltd., to benefit Allianz. This is the second time that Allianz has accessed PCS-MITT triggered cat bond protection and the eighth overall cat bond issuance benefitting Allianz since 2007.
Posts Tagged ‘Earthquake’
GC Securities* Completes Catastrophe Bond Bosphorus 1 Re Ltd. Series 2013-1 Notes for the Turkish Catastrophe Insurance Pool
GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/SIPC, today announced the placement of the Series 2013-1 Notes, with notional principal at $400,000,000, through a newly formed catastrophe bond shelf program, Bosphorus 1 Re Ltd., to benefit the Turkish Catastrophe Insurance Pool (TCIP). This is the first time that the TCIP has directly utilized the cat bond market to manage its earthquake risks in the Istanbul region.
Earthquake insurance coverage in developed and emerging economies varies widely, and earthquake coverage can be low, even in certain established markets. Of all the earthquakes that have caused economic losses over USD1 billion over the last three years, only events in New Zealand and Chile saw the (re)insurance sector contribute more than 25 percent of the overall cost.
Over the last two years, several powerful earthquakes have caused widespread damage, leading to significant losses for (re)insurers. Four out of the five most costly earthquakes on record have occurred since the start of 2010, and all four of these events were located outside the United States.
Guy Carpenter reports that dynamic capital growth and ample reinsurance capacity resulted in a relatively stable renewal at April 1, 2013. In a briefing released today, Guy Carpenter comments that the convergence of traditional and alternative capital sources is changing the marketplace, with non-traditional capacity now making up an estimated 14 percent of global property catastrophe limit.
As Table 1 shows, the three perils of wind, earthquake and flood have caused the heaviest losses to (re)insurers. While hurricanes in the United States have unsurprisingly generated the biggest wind losses, the most expensive earthquakes and floods have a more international flavor. Indeed, the most expensive earthquake loss and flood loss on record occurred last year in Japan and Thailand, respectively. Moreover, both the Tohoku earthquake/tsunami and the Thai floods revealed risks that (re)insurers had not previously considered, with CBI claims - resulting from supply chain failure - accounting for a large share of insured losses. High impact, low frequency events (such as earthquakes and tropical cyclones) and perils that typically are more regular (such as floods) are widespread in several developing markets, raising the prospect of more hidden loss potential.
The rise of natural catastrophe insured losses in non-peak zones is evident when looking at the global distribution of losses over the last three years. Figure 1 shows 35 percent of insured losses between 2009 and 2011 were located in Asia while only 33 percent were in the United States. Australia and New Zealand also saw a marked increase in insured natural catastrophe losses during this period, with 19 percent of the total.
Over the last few years, the global (re)insurance sector has seen significant increases in cold spot catastrophe losses. This growing trend refers to exposures in territories that have historically been considered non-peak zones and are unmodeled or inadequately modeled. It is also a by-product of the increasingly global economy in which (re)insurers operate and the growing demand for (re)insurance in emerging and developing territories. These developments are expected to have a significant impact on the property catastrophe market, driving the need for a deeper analysis of risk in non-peak catastrophe zones. Indeed, developing a better understanding of underwriting risks in these new markets and overcoming the current catastrophe model limitations are key ingredients to future success.
The succession of costly and global catastrophe losses over the last few years has had a wide-ranging impact on the (re)insurance sector. Since 2010, (re)insurers have been hit by powerful earthquakes in Chile, New Zealand and Japan, while devastating floods also caused widespread damage in Australia and Thailand. The exceptional cluster of global natural catastrophes in 2011 in particular emphasized increasing risk in emerging markets. The result has been unexpectedly expensive ‘cold spot’ losses in areas that were not considered as risky in the past.
In addition to the challenging macroeconomic environment, the sector has had to contend with heavy catastrophe losses over the last few years, particularly in areas not previously considered peak risks. Since 2010, (re)insurers have been hit by powerful earthquakes in Chile and New Zealand and devastating floods in Thailand and Australia. The result has been unexpectedly expensive “cold spot” losses at a time of increased insurance demand in regions such as emerging Asia and Latin America. Furthermore, the lack of catastrophe modeling solutions in emerging markets has raised concerns that (re)insurers do not currently possess an adequate understanding of the scale and nature of losses that can occur in these territories. In contrast to 2011, global catastrophe activity has been relatively light so far in 2012.