Bermuda’s insurance-linked securities market has added another feather to its cap with a “first of its kind” $100m issuance backing a US insurer of municipal bonds. Fidus Re Ltd, a Bermudian special purpose insurer, will use the proceeds from the sale of notes for a collateralised reinsurance agreement between Fidus and sponsor Build America Mutual Assurance Company, or BAM. Most ILS provide capacity for natural disaster reinsurance and the Fidus transaction is believed to be the first securitised transfer of financial guarantee risk to capital market investors.
The ILS investor base is braced for the potential for losses to grow from US primary insurer Nationwide Mutual Insurance Company’s $375m Caelus Re V Ltd. (Series 2017-1) catastrophe bond, as the insurers aggregated natural catastrophe losses rise further. The expectation now is for a total loss of two tranches of the Series 2017-1 issuance, while there is also the potential for losses to trigger a third tranche as well. Including qualifying losses from winter storm Riley impacts, Nationwide Mutual’s ground-up aggregate catastrophe losses are understood to be around $2 billion.
Aspen Bermuda's Kendall Re cat bond has priced at 525 basis points, at the lowest end of the reinsurer's revised forecasts. The spread on the deal settled 9 percent below the mid-point of its initial target range at 550-600 bps, before the range was lowered to 525-550 bps. The size of the Kendall Re 2018-1 deal has settled at $225m, up 50 percent from the initial $150m that Aspen Bermuda was seeking.
The catastrophe bond market has had a strong first quarter in 2018, continuing momentum established in 2017, according to Aon Benfield's 2018 reinsurance market report. The range of geographies and perils covered is broadening and a growing number of jurisdictions are enabling ILS issuance. "Passing the test posed by the 2017 catastrophe events has dispelled any remaining doubts about the sector’s permanency, boosting the confidence and acceptance of both investors and the broader marketplace," it concluded.
Although losses from Hurricanes Harvey, Irma, and Maria triggered payouts from investors, data from Guy Carpenter show 9 percent more alternative capital entered the industry at the end of last year than in the previous year. That's after providers replenished lost capital. Catastrophe losses are not scaring off alternative capital, concludes Christopher Schaper, CEO of the Schinnerer Group.
In his letter to Chubb shareholders, president and CEO Evan Greenberg points to climate change as a source of the increased frequency and severity of natural catastrophes and says this is not captured by catastrophe models. "Given there have been three one-in-100-year floods in 18 months, how can Harvey represent a 1% chance of occurring as the models suggested? Models provide an organised framework for thinking; they don’t represent truth."
PERILS AG has disclosed its second loss estimate of €1.63 billion for windstorm Friederike, also known as David. Friederike, which affected the British Isles, Belgium, the Netherlands and Germany on 17 and 18 January 2018. In line with the PERILS loss reporting schedule, the third loss estimate for Friederike will be released on 17 July 2018, six months after the event.
Posted: Monday, April 23rd, 2018