Pre-Monte Carlo BriefingBy Tom Johansmeyer | September 11, 2015
In less than 48 hours, the annual Rendez-Vous de Septembre will be in full swing. The insurance and reinsurance community will converge on Monte Carlo for the unofficial start of the January 1 reinsurance renewal season. Much of the chatter across the industry suggests a “boring” year. And we’ve all heard the reasons over and over by now. Light catastrophe activity. Downward pressure on reinsurance rates. Abundant capacity. Yet, it doesn’t have to be as boring as some expect.
As you prepare to run the annual gauntlet — as well as those seemingly endless stairs between the Fairmont and Café de Paris — here are a few trends to consider discussing in your many back-to-back 30-mintue meetings:
1. Catastrophe activity: Yes, we’re in the middle of another quiet catastrophe year for North America — the third in a row. Year-to-date catastrophe losses for the United States and Canada have reached only $11.2 billion as of August 31, 2015, with half of hurricane season already behind us. Keep in mind, though, that the last time we saw two consecutive years with cat losses below $10 billion was 2006 to 2007. In 2008, losses surged to $27 billion. There’s no substitute for being prepared, especially given the possibility of a late-season event such as Superstorm Sandy.
2. ILS evolution: Cedents now have access to more capital markets risk-transfer capabilities than ever before. Collateralized reinsurance has grown rapidly, and the ILW market has returned a bit. Cat bond lite use is up more than 100 percent from full-year 2014 to the first half of 2015. From highly customized indemnity-triggered 144A transactions to easy-to-complete index-triggered cat bond lites, the spectrum of ILS alternatives is broad, and innovation continues to support growth at both ends. The big question remaining is whether one of the next steps forward will be the development of a robust exchange-traded index solution. The market has sought an answer to this challenge for more than 20 years.
3. Cat bond lite: As of this writing, use of cat bond lite has reached nearly $500 million across all three major platforms. From $9.7 million to $71 million, the flexibility of this approach is being tested at both the high and low ends of the market, and other private deals have gone as high as $300 million this year. Of year-to-date cat bond lite issuance, 32 percent have used the PCS Catastrophe Loss Index (28 percent by capital raised), with the rest either undisclosed or using indemnity triggers.
4. Growing the pie: Many have once again begun to ponder how to grow the reinsurance and ILS markets — always a conversation in a soft market. There is no shortage of possibilities, from closing the “disaster gap” in places like Florida and California to entering microinsurance markets around the world. Catastrophe bond issuance in the likes of Turkey and China is really just the start of what’s possible.
Tagged with: , , , , , ,