News review | May 03 2016

USAA’s latest catastrophe bond, Residential Reinsurance 2016 Limited (Series 2016-1), is set to achieve the upsized target of $250m of collateralised reinsurance cover, with all three tranches expected to price at the lowest end of the already reduced guidance. The bond will provide USAA with a four-year source of collateralised reinsurance for losses from tropical cyclone risks, earthquake, severe thunderstorm, wildfire, winter storm, volcanic eruption, meteorite impact and other perils on an indemnity trigger and annual aggregate basis.

Global investment bank Credit Suisse is using a Bermudian-based special purpose insurer as a vehicle for an innovative bond that would offload risk from events including rogue trading and cybercrime. The vehicle being used for the bond is Operational Re Ltd, an insurer licensed by the Bermuda Monetary Authority with its address listed as that of ILS specialist Horseshoe Group.
The Royal Gazette

The London insurance linked securities (ILS) market is perfectly positioned to become the global centre for cyber risk insurance, according to a new report from BNY Mellon. “The capital markets can help nascent classes of insurance flourish,” said Paul Traynor, Pensions and Insurance Segments Leader, International, BNY Mellon. “There’s huge potential for cyber risk to be transferred to the capital markets using ILS, in a similar way to how cat bonds underwrite hurricane and earthquake risks."
BNY Mellon

Warren Buffett, who built Berkshire Hathaway by reinvesting premiums from insurance units, said low bond yields have hurt the prospects of that strategy. “That game has been over for a while,” Buffett said during Berkshire’s annual meeting. “It looks like it will be at least unattractive, if not terrible, for a considerable period in the future... It is no fun running a traditional reinsurance company and having money come in, particularly in Europe [when] many of the things you were buying a few years ago have negative yields."

Lloyd's chairman John Nelson said the Corporation's mooted insurance index remained a work in progress, but admitted that its development was taking longer than expected. Speaking at an Insurance Institute of London lecture, Nelson told the audience that Lloyd's was "on the case" with developing the index but that it was "taking a bit longer than we thought".
Trading Risk

AM Best considers the different approaches to catastrophe insurance in some of the largest European Union member states in a new report, and finds that natural catastrophe schemes have risen up the agenda as a result of a perceived increase in the frequency of natural disasters and growing awareness of the potential effects of climate change. It also notes that catastrophe pools "often make use of the reinsurance and capital markets to transfer their peak risks".
AM Best

In a series of solvency stress tests on insurers, the UK's Prudential Regulation Authority found a "significant reliance" on reinsurance, but added that recovery was "well-diversified". Firms were asked to identify an extreme scenario for this firm that would make their business plans unviable. Events included natural and mandmade catastrophes as well as counterparty reinsurance credit risk.
The Actuary

US re/insurer Prudential Financial has completed a third longevity reinsurance deal with the UK's Legal & General (L&G). Terms of this deal were not revealed, but L&G transferred $2.9bn of longevity liabilities in 2015 and $2.2bn in 2014.

Posted: Monday, May 9th, 2016