The extent of rising insured losses from global natural catastrophes over the last 40 years is illustrated below.
Posts Tagged ‘nat cat’
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.
Floods are among the most destructive hazards and as more people move to urban areas, flooding is having a growing impact on larger populations and economic losses.
Here we bring together recent GC Capital Ideas’ posts that have focused on the BRIC (Brazil, Russia, India and China) countries.
Increased Flood Loss Potential: Making use of all available tools and practicing comprehensive exposure management will both strengthen (re)insurers’ ERM practices and allow them to make informed risk management and reinsurance decisions as they enter new markets. Certainly, flood risk is prevalent and increasing in almost every developing economy.
Lloyd’s: What Will Success Look Like? If Lloyd’s is successful in achieving the growth and diversification outlined in its near-term and long-term strategic plans, it can expect to capitalize on business opportunities in emerging market economies such as the BRIC countries (Brazil, Russia, India and China). Growth, however, will not necessarily be limited to these markets. Other countries in Southeast Asia, Eastern Europe and Latin America are experiencing strong growth and increasing insurance penetration, and these territories also present attractive opportunities for Lloyd’s.
Growth Potential in Developing Markets: Positive premium growth trends in developing markets are expected to be sustained over the next decade. During this time, emerging markets are expected to drive global economic growth, and foreign direct investment in these emerging regions is likely to increase. In Brazil alone, investment in infrastructure is expected to amount to USD550 billion over the next few years as the country prepares to host the soccer World Cup in 2014 and the summer Olympics in 2016. China and India too are expected to continue to see robust growth in the next ten years.
State of the Reinsurance Market, Part II: Inflation/Deflation Expectations, Investment Returns: Expansionary monetary policy has fueled concerns that inflation could increase in the medium term, but the picture is less clear in the near term. While consumer price indices in Brazil, Russia, India and China (BRIC), the United States and the rest of the G7 currently exhibit positive trends, consensus forecasts show borderline disinflationary trends in the nearer term in the United States and many developed markets.
Here we review all of the CAT-i report events that appeared on GC Capital Ideas in the second half of 2012.
Floods in Eastern Australia, February 1: Ex-tropical cyclone Oswald tracked over parts of Queensland and New South Wales in eastern Australia between January 23 and January 30, resulting in widespread damage from flooding, severe storms and tornadoes. Floodwaters in some areas reached record levels, causing damage to thousands of properties and forcing widespread evacuations.
Update: Sandy, October 31: The full scope of Sandy’s impacts will still take a day or two to emerge. As storm surge recedes and those affected survey the damage, the last 24 hours have brought new reports of downed trees and power lines, with localized inland flooding, over an incredibly large area from the Mid-Atlantic to the Great Lakes to Atlantic Canada.
Tropical Storm Isaac, August 30: Tropical Storm Isaac now carries maximum sustained winds of 40 mph. It continues its slow drift, now to the north-northwest. Storm surge, inland flooding, and inland tornadoes remain as ongoing hazards with Isaac.
Here we review the recent GC Capital Ideas stories that have dealt with supply chain risk.
Contingent Business Interruption: Life Support for Industry: the insurance industry contemplates the concept of supply chain risk, questioning whether it is a threat or an opportunity. The industry is undecided whether CBI coverage should be enthusiastically marketed as a positive differentiator or consigned to the “accommodation business” category.
Global Losses of 2011 Changed the Perception of Risk: 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.
Thailand Flood 2011: Executive Summary: In 2011, Thailand experienced its worst flooding in years, leaving more than 800 people dead and causing severe damage across northern and central regions of the country. The floods, lasting a few months, severely damaged and disrupted manufacturing operations in Thailand.
Guy Carpenter Asia Pacific Catastrophe Report 2012; Executive Summary: The Thai floods emphasized the need not only to understand asset concentrations better but also the fragility of global supply chains. Not only were these property damage losses modeled on a rudimentary basis if at all, but business interruption losses and supply chain disruption were completely unmodeled.
Global Perils: 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.
Here we repeat our popular series authored by John Major, which focuses on the issues and challenges in managing catastrophe model uncertainty.
Managing Catastrophe Model Uncertainty, Issues and Challenges: Part I, Executive Summary: Uncertainty is ever present in the insurance business, and despite relentless enhancements in data gathering and processing power, it is still a large factor in risk modeling and assessment. This realization, driven home by model changes and recent unexpected natural catastrophes, can be disconcerting - even frightening - to industry participants. But companies that understand the vagaries of model uncertainty and take a disciplined, holistic approach to managing the catastrophe modeling process are well positioned to adapt and outperform the competition.
Managing Catastrophe Model Uncertainty, Issues and Challenges: Part II, Natural Cat Modeling, Uncertainty in Cat Model Results: Computerized simulation modeling of the potential impact and risk of natural disasters - from multiple perils - was pioneered by Dr. Don G. Friedman at the Travelers Insurance Company in the 1960s. Figure 2, below, is an example of one of his simulated wind speed maps, circa 1974. In 1987, Karen Clark founded the first cat modeling firm, AIR, and three more firms, RMS, EQECAT and ARA, came on the scene in 1988, 1994 and 1999, respectively. By the early 1990s Guy Carpenter had become a “power user” of cat models and augmented its capabilities by acquiring the intellectual property - and hiring some colleagues of the retiring Dr. Friedman.
Managing Catastrophe Model Uncertainty, Issues and Challenges: Part III, Using Cat Models: Scenario analysis has a long history in risk management. By examining a set of hypothetical extreme events and asking “what if this were to happen?” management can begin to get a sense of vulnerabilities in the business. But it is hard to assess how realistic a particular scenario might be. Using historical events as the basis for scenarios incorporates the fact that those events did, in fact, occur. They are realistic by definition. And their relative occurrence over time gives a sense of probability.
Managing Catastrophe Model Uncertainty, Issues and Challenges: Part IV, How Guy Carpenter Can Help: As Karen Clark, founder of AIR and now an independent consultant, has said, “the black box started out as a useful tool for decision making, but then it grew to be very big and very powerful; the black box now makes the decisions.” While somewhat hyperbolic, there is also much truth to this aphorism. Models are tools, and a good tool user understands the strengths and limitations of the tool.