After one of the quietest U.S. catastrophe seasons (record low tornadoes, tied for record low landfalling hurricanes, lowest number of forest fires since 1984 etc) the risk premium demanded by cat-bond buyers reaching for yield has fallen to the lowest level I can recall.
A twofer from Artemis:
Buyers market at January reinsurance renewals: Aon Benfield
Traditional reinsurers have continued to seek to differentiate themselves in order to secure signings at the January reinsurance renewals, as they fight back against alternative reinsurance capital and ILS, according to a report from broker Aon Benfield.And:
Reinsurers have focused on using what Aon Benfield term their competitive strength in underwriting as they respond to price decreases of between 25% to 40% allowed by insurance-linked securities (ILS) investors and some collateralized reinsurance funds in 2013.
Traditional reinsurers have strategically underwritten contractual features that are difficult for ILS and alternative reinsurance capital players to replicate, said Aon Benfield, referring to a general relaxing of terms and conditions that have been a feature of the January reinsurance renewals.
Of course, what this means is that reinsurers have been underwriting at some of the lowest pricing levels seen since at least 2005 while at the same time relaxing terms and conditions on the contracts underwritten....MORE
One hurricane could wipe out 60% of catastrophe bonds: AIR Worldwide
A single Category 5 hurricane making a number of landfalls on the U.S. coastline, including impacting Miami and New York, could wipe out as much as 60% of catastrophe bond tranches, according to analysis from risk modeller AIR Worldwide.
AIR Worldwide risk consultant Justin Pierce takes a look at the modelled events in AIR’s dataset which, if they occurred, would have the largest impact on the outstanding catastrophe bond market. His analysis looks at four simulated events, two powerful modelled hurricanes and two weaker storms which are still impactful to cat bonds, and the impact that their modelled losses would have on current cat bonds.
U.S. wind or hurricane risk makes up a large proportion of the current catastrophe bond market, making up as much as 64% to 70% of cat bond risk capital currently at risk. As a result it is important for investors to understand the potential ramifications of worst case scenario catastrophe events on their portfolios and the cat bond market.
The analysis first looks at these two Category 5 hurricanes, both of which take a similar track and have similar intensity, and compares the potential impacts to the cat bond market.
Hurricane Events 1 and 2 which have similar tracks and intensity - Source: AIR Worldwide
We'll be discussing the hurricane and tornado numbers over the next couple months, in the meantime here are the fire numbers from the National Interagency Fire Center:The first, Event 1, is the single hurricane simulation which would cause the largest loss to the cat bond market in AIR’s database of storms. It is a 1 in 10,000 year event, with an exceedance probability of just 0.01%. It makes landfall in Monroe County, Florida, before slamming Miami, then hitting North Carolina and finally New York and New Jersey area...MUCH MORE
| Year-to-date statistics | ||
| 2013 (1/1/13 - 12/20/13) | Fires: 46,199 | Acres: 4,279,924 |
| 2012 (1/1/12 - 12/20/12) | Fires: 56,682 | Acres: 9,144,881 |
| 2011 (1/1/11 - 12/20/11) | Fires: 69,724 | Acres: 8,614,485 |
| 2010 (1/1/10 - 12/20/10) | Fires: 68,260 | Acres: 3,380,055 |
| 2009 (1/1/09 - 12/20/09) | Fires: 79,178 | Acres: 6,406,420 |
| 2008 (1/1/08 - 12/20/08) | Fires: 76,229 | Acres: 5,216,772 |
| 2007 (1/1/07 - 12/20/07) | Fires: 85,335 | Acres: 9,309,479 |
| 2006 (1/1/06 - 12/20/06) | Fires: 95,864 | Acres: 9,737,680 |
| 2005 (1/1/05 - 12/20/05) | Fires: 65,248 | Acres: 8,641,495 |
| 2004 (1/1/03 - 12/20/04) | Fires: 65,215 | Acres: 8,082,235 |
Previously:
The Catastrophe Bond Market Is Now So Large It Is A Credit Negative For the Reinsurers It Competes With
Catastrophe Bond Buyers Rejoice:"The Unusually Quiet Atlantic Hurricane Season of 2013 Ends"
Munich Re: "2013 expected to beat catastrophe bond issuance record"
Insurance: "As catastrophe bond risk premiums plummeted, expected losses fell too" (ALL; ACE; TRV; XL)
Insurance: Hannover Re Reports Earnings Up 29%, Makes Munich Re Look Incompetent
Insurance: Very Quiet Start to the Hurricane Season (ALL; CB; TRV)
Insurance: Property Casualty Looks to Be Extremely Profitable This Year (TRV; CB; ALL; AIG)
