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Cat bond issuance $7.4 billion in 2013, while global cat losses down 40% from 2012


January 3, 2014   by Canadian Underwriter


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Global insured catastrophe losses were below average in 2013, the cost of reinsurance is declining and new catastrophe bond issuance totaled $7.4 billion in 2013, according to a new report by Aon Benfield.

“New competitive capital flows will continue to benefit reinsurance buyers in the April, June and July renewal seasons,” reinsurance intermediary and capital advisor Aon Benfield stated in its Reinsurance Market Outlook 2014 report.

Chicago-based Aon Benfield, a division of London-based Aon plc, stated a “light catastrophe year resulting in a global insured catastrophe loss,” of $45 billion, “has helped increase reinsurance capital to a new peak level” at the end of the third quarter of last year. All figures are in U.S. currency.

That new peak level was $525 billion. The outlook included a bar graph depicting global reinsurer capital as of the end of each year 2007 through 2012. That capital had been $505 billion at the end of 2012, up from $340 billion at the end of 2008.

“The cost of reinsurance capital as a component of underwriting capital has declined materially for nearly every class of reinsurance over the last two renewal cycles,” Aon Benfield stated. “The most dramatic cost decreases have occurred in U.S. peak hurricane zones. We believe more instances of opportunistic reinsurance use will emerge in the near-term.”

Based on data from last month, Aon Benfield reported that “aggregate insured global catastrophe losses were poised to be at their the lowest levels since 2009.” The preliminary figure for global insured losses in 2013 – which is subject to change – is listed at $45 billion, down 22% from the 10-year average of $58 billion and down 40% from $75 billion in 2012.

As of Dec. 31, 2013, there was a total of $20.3 billion outstanding in cat bond issuance, Aon Benfield suggested, adding 15 transactions closed during the last six months of 2013.

“During the second half of 2013, several new sponsors entered the market including the Metropolitan Transportation Agency, AXIS Specialty, American Modern and QBE Insurance Group,” Aon Benfield stated. “A broad range of risks was offered to investors including Australia earthquake and cyclone, Japan earthquake and Europe windstorm, as well as U.S. perils.”

Cat bonds covering Canadian perils included four issuances by Tradewynd Re Ltd. on behalf of American International Group Inc. Those issuances included: one for $160 million with an interest spread of 6.25%; one for $140 million with an interest spread of 7%; one for $125 million with an interest spread of 8.25%; and one for $100 million with an interest spread of 6.25%.They cover U.S. and Caribbean hurricane, and U.S. and Canadian earthquake.

Three other issuances – by Loma Re (Bermuda) Ltd. on behalf of Argo Re Ltd. – cover those same perils, plus U.S. multi-peril. They were: one for $75 million with an interest spread of 12%; one for $65 million with an interest spread of 17%; and one for $32 million with an interest spread of 9.75%.

“Alternative capital though has carved out a substantial space in replacement of traditional property catastrophe reinsurance,” Aon Benfield noted. “Reinsurers that have asked us what they can do to improve their competitive differentiation from insurance-linked securities and collateralized reinsurance have all been told that matching the unlimited hours for U.S. named storm occurrences and reducing the cost of reinstatement premiums would be effective.”


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