Tuesday, April 13, 2010

Where are the Catastrophe Bond Issuances? (BRK.B; BRK.B)

There is huge capacity in the Re-biz right now. As I said in last week's "Reinsurance Industry Approaches Record Levels" (BRK-B; BRK-A)'":
This is just a bookmark for a piece I had promised and not delivered, divining the insurance industry's thinking on global warming.
I put Berkshire in the title because in addition to being the world's third largest reinsurer they recently upped their stake in #1 ranked* Munich Re to 7.99%.

Berkshire Hathaway also owns 3% of Swiss Re and has 3Billion Swiss francs worth of some yummy 12% notes, convertible at 25CHF i.e. 120Mil. shares, current outstanding 354Mil.; last trade 52.35 CHF.

*Munich Re and Swiss Re have swapped the #1 ranking the last few years. We'll have the final 2009 tally by June....
From BloggingStocks:
Catastrophe bond capacity is maturing, and not much of it is coming back. In the first quarter, $1.8 billion in cat bond risk capital matured, and only $508 million returned in the form of new issuances, according to Thomson Reuters. This quarter, $2.77 billion is maturing, and the absence of first-time issuers makes it unlikely that the market will replace it all. More than a billion of it was from State Farm's Merna Re transaction. The successor to it has already been issued, cleverly named Merna Re II, at only a fraction of the previous bond.

So far, only three cat bonds have closed this year, with The Hartford (HIG) and Swiss Re (SWCEY) joining State Farm. Of course, we're only two weeks into Q2 and Q1 is normally quiet....MORE
See also:
Jan. 6 "Berkshire Hathaway’s Swiss Re Investment Pays Off (BRK.A; SWCEY)"

Feb. 26 "Berkshire Hathaway's "Buffett Picks Insurer Cooperation Over Competition " (BRK-B; BRK-A)":
This is worth keeping an eye on. After a hurricane season with no U.S Atlantic or Gulf landfalls catastrophe bonds scored big and the reinsurers pocketed a bunch of premiums. The state of Florida's decision to self-insure also worked out.

This year may not have as favorable a El Nino/Southern Oscillation, I'll post the latest NOAA advisory after the headline story....
Mar. 5 "Insurance: "El Nino dissipating, but may linger through 2010" (BRK-A; BRK-B)":
Place your bets.
Partly because of the ENSO/Southern Oscillation and partly because of the PDO and Arctic Oscillation we had one February tornado this year, an EF0, reported at 445 PM on 27 February. That follows a hurricane season with no U.S. landfalls....
Mar. 9 "Insurance: " Record warmth in Atlantic Main Development Region for hurricanes" (BRK-A; BRK-B)"

Mar. 10 "No Surprise: Chile Leads to Reinsurance Rate Increase Debate" BRK-A; BRK-B"':
No kidding.
A brisk breeze gets the boys in Omaha, Zurich, Munich and London (Lloyds) talking about premium increases.
Not to mention the herverzekering crowd in Amsterdam, they're tough bastards....