News review l March 24 2014

Proposals to purchase $1.5 billion in reinsurance cover for the Florida Hurricane Catastrophe Fund have stalled in the state’s legislature, according to the fund’s COO, Jack Nicholson. Nicholson has previously said that he favours using catastrophe bonds and collateralised reinsurance for at least some of the private reinsurance protection. However, Florida’s politicians now appear unwilling to take a measure that would involve raising consumer rates to pay private reinsurers that are based offshore, particularly when it has been eight years since the state suffered a hit from a major storm.

Florida’s government owned insurance company, Citizens, looks set to grow its private reinsurance purchase including a potential replacement for its giant, $750m cat bond Everglades Re.

Japanese insurer, Zenkyoren, is set to buy an extra $3 billion of limit at the 1 April renewals, in a move that demonstrates the softness of the reinsurance markets. Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, has been the largest single buyer of catastrophe reinsurance coverage for a number of years, with a reinsurance treaty sized between $6 billion and $7 billion dollars. According to reports, Zenkyoren achieved a risk adjusted price decline of around 10% to 12.5% across its catastrophe reinsurance treaty, which has increased to $10 billion.

The placement of Japanese insurer Tokio Marine’s Kizuna Re II catastrophe bond has been successfully concluded. The bond more than doubled in size from an initial $200m to $425m at close after taking advantage of attractive pricing conditions in the ILS market. The bond provides Tokio Marine with fully collateralised catastrophe protection for Japanese earthquake risk.  Kizuna Re II was the second catastrophe bond transaction sponsored by Tokio Marine using an indemnity trigger after the issuance of Kizuna Re in 2011. Both bonds were arranged by Aon Benfield Securities, which acted as sole book runner and sole placement agent.

ILS investment managers Blue Capital Management has set a share price of $1.065 per share for the latest round of capital raising for its London-listed fund. The proposed price represents a premium of 2.8% to the net asset value of each ordinary share as at 28 February.

ILS fund manager, CATCo Investment Management Ltd, has launched its first traditional reinsurance fund. The Aquilo fund will be capitalised at $110m and co-managed by Charlie Vaughan and Rick Montgomerie, who recently joined CATCo as directors of underwriting.  The firm said the fund’s aim would be to seek capital return over the short term, with an emphasis on the traditional reinsurance sector. Aquilo will be exposed to traditional global reinsurance risk, insurance-linked securities (such as notes, swaps and other derivatives), and other financial instruments, according to CATCo. The company plans to grow Aquilo into a $250 million fund by 2015.

Reinsurance broker, JLT Towers Re, has appointed Bart Zanelli as head of Advisory North America. Zanelli joins JLT Towers Re after spending several years with Guy Carpenter’s GC Securities capital markets unit, where he held the role of Managing Director of Corporate Finance and Advisory. His role at GC Securities included the execution and closing of transactions relating to financing, M&A and securitisations of insurance funding assets. Zanelli’s role will include developing the North American business by assisting clients and prospects with investment banking services, including raising capital, M&A, and the evaluation of strategic alternatives, said the broker.

Munich Re is set to return capital to its shareholders with €I billion buyback programme. It is another sign of the competitiveness of the reinsurance markets as the reinsurer has decided to return excess capital rather than seek opportunities for it. The buyback equates to approximately 3.7% of the reinsurers share capital. Munich Re’s has also lowered its profit target for 2014 to €3 billion, down on the €3.3 billion the firm achieved in 2013.

Last week’s Los Angeles earthquake was the strongest to strike the city since the Northridge quake of 1994, according to the US Geological Survey. The USGS recorded the 4.4 magnitude quake just 9km from the Westwood area of Los Angeles on 17 March. Although the reinsurance and catastrophe bond markets have significant exposure to Californian quake an event of 4.4 magnitude is no threat. However, the USGS did warn that further quakes might follow soon

Posted: Monday, March 24th, 2014