Here we review recent GC Capital Ideas posts on some of the drivers behind public entities considering new approaches to risk financing.
Posts Tagged ‘US’
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.
Here we review recent GC Capital Ideas posts on the emerging risks affecting life, health and longevity.
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.
From one of GC Capital Ideas’ more popular categories, we highlight the top Chart Room stories viewed during the first quarter of 2016:
1. Global Property Catastrophe ROL Index 1990 to 2016: The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) index is presented for 1990 through 2016.
2. Regional Property Catastrophe ROL Index, 1990 to 2016: The chart shows the indexes for United States, United Kingdom, Asia Pacific and Europe.
3. Top Ten Catastrophe Bond Transactions for 2015: The table lists the top ten catastrophe bond transactions that were completed in 2015.
4. Catastrophe Bond Issuance and Capital Outstanding - 1998 to YE 2015: The chart below presents catastrophe bond issuance through 2015. Total bond issuance for the year 2015 was the fourth highest historically.
5. Alternative Capacity as a Percentage of Catastrophe Reinsurance Limit: The chart below presents alternative capital capacity as a percentage of global property catastrophe reinsurance limit from 2008 to year-end 2015.
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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.
The National Flood Insurance Program (NFIP) is the primary underwriter of flood insurance policies in the United States. The program was established in 1968 through the passage of the National Flood Insurance Act.
Flood is the largest contributor to catastrophic loss worldwide. Recent initiatives from Guy Carpenter and Marsh & McLennan Companies, both involving the peril of flood, demonstrate the diversity of approaches that can be brought to bear. In the United Kingdom, we are involved in a project where the insurance industry is working in concert with the government to adjust the industry’s approach to the peril of flood and maintain the private sector’s role as the source of insurance protection without a resultant increase in the public sector’s liability. In the United States, a project is being sponsored by the Federal Emergency Management Agency and the US Congress to determine how the National Flood Insurance Program might be privatized and how it might utilize reinsurance to support its risk management efforts, and thereby move potential loss exposure off the public balance sheet.
A number of countries provide for government supported terrorism risk transfer solutions to manage global threats of terrorism. The actual mechanisms employed are a spectrum between loan and direct support, as illustrated in the chart below.