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Hi,
Please
find below your free copy of the brand new ILS Today
Newsletter. This brand new service will provide thousands
of insurance-linked securities professionals with the
most timely news about the market. If you would like
to be a guest editor, simply contact ian@ilstoday.com
.
In
this issue, we have worked with online newsletter STORM
whose objective is to provide readers with an intelligent,
concise, relevant and timely interpretation of the alternative
risk transfer markets. You can sign up for a free trial
at www.storminvestor.com
.
If
you like what you read and would like to receive more
from ILS Today, simply click on the tab on the top right
hand side of the page and sign up today – for FREE!
If you do, you will receive:
- Regular updates on the
insurance-linked securities and cat bond market
- Expert advice on a wide
range of issues that impact your business
- Interviews with industry
experts
If
you know anybody else who might be interested, then
forward this newsletter to them!
Don't
forget to subscribe today!
Many
Thanks
Ian
Evans
ILS
Today
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Largest
European Wind Issue Closed
€200m
deal kick-starts €1bn platform
Allianz
has successfully closed its first catastrophe bond transaction
related to windstorm risk. At €200m-equivalent,
Blue Fin is the largest single placement of European
windstorm risk in the insurance-linked securitisation
(ILS) market to date.
The
cat bond transfers to investors the risk of windstorms
in Austria , Belgium , France , Germany , Ireland ,
the Netherlands and the UK , and uses a parametric index
trigger. The index is based on the measurement of wind
speed at various locations.
The
securities issued by Blue Fin - €155m Class A
principal at-risk notes and US$65m Class B principal
at-risk notes (both due in April 2012) - priced at 4.55%
and 4.40% over Euribor and Libor respectively. The notes
are the first issuance under the €1bn principal
at-risk floating-rate note shelf programme newly established
by Allianz. Both sets of notes received a rating of
double-B plus from S&P.
"Cat
bonds offer us a valuable additional risk management
instrument," explains Amer Ahmed, chief risk officer
of the reinsurance division of Allianz SE. "The
Blue Fin programme enables us to ease capacity constraints
for one of our peak catastrophe exposures and to release
risk capital."
Allianz
says the successful placement of the cat bond demonstrates
that investor demand for this type of securities continues
to be strong and that this market segment has been largely
unaffected by the recent turmoil in the financial markets.
The firm expects that the ILS market will continue to
play an increasingly important role in the future of
the insurance industry.
Blue
Fin is a special-purpose Cayman Islands-exempted company,
whose ordinary shares are held in a charitable trust.
It issued the notes and invested the proceeds in high-quality
assets within a collateral account.
Blue
Fin swaps the total return of the asset portfolio with
Morgan Stanley Capital Services, in exchange for quarterly
Euribor and Libor-based payments. Simultaneous to the
issuance of the notes, Blue Fin entered into an ISDA-based
counterparty contract comparable with a reinsurance
contract with Allianz Argos 14, guaranteed by Allianz.
This contract will provide for payments to Allianz if
a windstorm of a certain magnitude occurs within predefined
European countries.
The
payment received from Allianz under the ISDA-based counterparty
contract and the proceeds from the total return swap
with Morgan Stanley will be used to make the scheduled
payments to the holders of the notes. Allianz will pay
the up-front and ongoing expenses of Blue Fin in connection
with this security issuance.
S&P
says that the ratings on the notes are based on the
creditworthiness of Allianz as guarantor under the ISDA-based
counterparty contract and of Morgan Stanley as guarantor
of the total return swap counterparty. A significant
part of the rating analysis took account of an assessment
of the occurrence probabilities of European windstorms
as modelled by Risk Management Solutions.
Article
from www.storminvestor.com
Email:
mp@storminvestor.com
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How
the art of risk modelling is being advanced
An
interview with Dr. Milan Simic, Managing Director, AIR
Worldwide Ltd.
In
the last issue of the ILS Today Newsletter, Vinay Mistry
of Lloyd's of London discussed how open source risk
modelling – a platform that would enable the user to
choose different individual modules from different sources
– could be beneficial to the future of risk modelling.
In this issue, we have spoken to Dr. Milan Simic who
is Managing Director of AIR Worldwide Ltd. to find out
what they are doing to advance the art of risk modelling.
Dr.
Simic describes how developing and advancing the art
of risk modelling is an ongoing process; “AIR was first
to market with a severe thunderstorm model (1987), a
European windstorm model (1993), terrorism and worker's
compensation models (2002) and life insurance model
(2003)”. He continues to talk about how well documented
events such as Katrina have helped develop AIR's storm
surge models so that they can better predict peak surge
levels resulting from such storms.
Storms
such as Katrina provide an unprecedented quality of
detailed loss data that AIR have used to fine-tune their
models yet the probabilistic framework used to model
catastrophe risk has not changed. “Our analysis of billions
of dollars of detailed claims data and our post-disaster
survey findings provide valuable insight into the effects
of hurricane force winds on insured properties.”
However,
Mistry argues that while the industry owes the catastrophe
modelling firms a great debt, “improvements could be
made”. Lloyd's of London believe that it is possible
for risk modellers to incorporate the most recent and
relevant scientific and engineering advances into their
own risk models which would increase the speed at which
such models develop.
But
this is not to say that advances are not already being
made, as AIR meteorologists have made important contributions
to climate research. “Over the course of the last two
years, AIR meteorologists have undertaken extensive
analysis to further the understanding of the link between
elevated SSTs in the Atlantic and regional landfall
frequency, and to explain why an over reliance on the
data from the 2004 and 2005 hurricane seasons leads
to an overestimation of projected landfall risk in the
near term”.
Dr.
Simic goes on to explain how AIR has also added six
new occupancy classes that cover gas stations, restaurants
and golf courses, providing insurers who underwrite
such properties with “a more realistic view of their
risks”. AIR have also developed the AIR U.S. Hurricane
Model, which estimates those indirect business losses
such as lost revenues that stem from sources other than
physical damage.
Risk
modelling is a complex business that requires a detailed
understanding of the physical and long-term economic
effects that a catastrophe has on the insured party.
And more importantly, what this means for the insurance
company carrying the risk. Only time will tell whether
the ILS community will benefit from the improved understanding
of risk that open-source risk modelling may offer. However,
in the short term at least, it is likely that insurers
will continue to rely on risk modelling companies such
as AIR Worldwide Ltd. to use loss data to continually
enhance and fine-tune their own risk models.
Written
by Ian Evans
Email:
ian@ilstoday.com
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US
Cat Bond Bill Edges Forward
Legislation
advances but still faces significant opposition
Proposed
US legislation that aims to create a consortium to bundle
catastrophe risk and issue cat bonds was introduced
into the Senate and won a vote in the House of Representatives
last week. However, to progress into law the proposals
still must overcome major changes.
On
6 November, Senators Hillary Rodham Clinton and Bill
Nelson introduced the "Homeowners Defense Act of
2007," companion legislation in the Senate to the
bill introduced in the House of Representatives by Congressmen
Ron Klein and Tim Mahoney (see STORM issue 1). The latter
bill went to a vote on 8 November and the House passed
the measure by a vote of 258 to 155.
The
proposals do not, however, find favour with the insurance
industry. For example, Governor Marc Racicot, president
of the American Insurance Association (AIA), spoke out
against the introduction of proposed legislation to
the Senate.
"This
legislation raises serious concerns for AIA and its
more than 350 member companies, who do not want to see
Congress go down the road of creating mechanisms that
would impair, rather than improve, insurers' ability
to serve the public by providing catastrophe insurance,"
he says.
Racicot
continues: "While we appreciate the efforts of
Senators Clinton and Nelson to address homeowners' insurance
issues, the private insurance system continues to be
well-positioned to manage natural catastrophe risk,
and we believe the best course is to improve, not displace,
the private sector's ability to serve homeowners and
businesses that could face losses from natural catastrophes."
"We
urge Congress to proceed cautiously and deliberately
as it takes on homeowners' insurance challenges, and
to look toward durable, long-term, market-oriented solutions,"
he concludes. Racicot looks set to succeed, with the
Senate thought likely to postpone a decision pending
a commission study on the matter and the House vote
failing to get the two-thirds support sufficient to
obviate a Presidential veto.
Indeed,
even if both chambers were to approve the legislation,
President Bush has indicated he would veto a bill. However,
it may cease to be his decision, with political commentators
suggesting that such a contentious issue may be delayed
until after next year's election.
Its
sponsors say that the Homeowners Defense Act focuses
on stabilising the catastrophe insurance market by expanding
the private sector's capacity to cover a natural disaster
and helping states to better manage risk. The Clinton-Nelson
bill establishes a Catastrophic Risk Consortium, a non-Federal
entity, which states will have the option to join.
States
will participate by allowing their state-sponsored insurance
funds to voluntarily bundle their catastrophic risk
with one another in the Consortium. The risk would then
be transferred to the private markets through catastrophe
bonds issued by the consortium and negotiated reinsurance
contracts.
"The
bill also provides for federal loans to states impacted
by severe natural disasters to help ensure a state fund's
liquidity in the event of a disaster. This bill will
help facilitate and enhance homeowners' access to insurance,
which may ultimately result in lower insurance rates,"
the bill sponsors say.
Article
from www.storminvestor.com
Email:
mp@storminvestor.com
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Other interesting
news articles
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II - CEIOPS issues further supervisor guidelines
Last Wednesday,
CEIOPS (the Committee of European Insurance and Occupational
Pensions Supervisors) charged with managing the launch
of Solvency II, publishe its guidelines on how information
will be shared between the lead supervisor and the local
supervisors...
Click
here to read full story
Clariden
Leu Ltd. Integrates AIR's Modeling Software to Manage
Catastrophe Bond Risk
AIR
Worldwide Corporation (AIR) today announced that Clariden
Leu Ltd., a member of the Credit Suisse Group, has licensed
CATRADER®,
the industry standard application for analyzing catastrophe
reinsurance and insurance-linked securities, to assess
and manage the risks associated with its portfolio of
catastrophe bond investments...
Click
here to read full story
SAS Roundtable
on Solvency II Casts Bold Vision
SAS, the leader
in business intelligence, led a forum for European insurance
leaders to discuss Solvency II with its chief European
Union architects. Solvency II, a set of proposed regulatory
requirements for insurance firms that operate in the
EU, is expected to reinvent the way financial stability
of insurers is evaluated...
Click
here to read full story
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