The SD Re Ltd (Series 2018-1) catastrophe bond transaction, which will be the second California wildfire cat bond covering third-party liability costs, has not grown in size while being marketed, remaining at $125m while the pricing is expected to settle today at the middle of initial guidance. Inevitable comparisons are being made between the cat bond, which will benefit electrical utility firm Sempra Energy, and the recent Cal Phoenix Re Ltd. (Series 2018-1) transaction, which was the first to provide pure California wildfire protection.
The next post-event capital reload will likely be “choppier” than that which occurred in the aftermath of Hurricanes Harvey, Irma and Maria, Michael Millette, founder and managing partner at Hudson Structured Capital, predicts. Catastrophe modelling misses last year were beneficial to the ILS market as they allowed the market to raise more money, he said.
Hurricane Michael will result in an insurance and reinsurance market loss of close to $8 billion from wind and storm surge, excluding NFIP losses, according to catastrophe risk modelling specialists Karen Clark & Co. While some estimates put total catastrophe bond exposure in Florida hurricanes at $15 billion, much of that is for Miami, Palm Beach and surrounding counties on the state's Atlantic side and not along the Florida Panhandle.
Meanwhile, Keefe Bruyette & Woods (KBW) anticipates losses from Hurricane Michael will be largely absorbed by reinsurers. Meyer Shields, managing director at KBW in Baltimore, said: “Florida's fragmented personal property market is typically heavily reinsured at relatively low attachment points — today,” he wrote. “Although we don't have a credible estimate yet, we expect the industry’s total insured losses to be manageable, with little impact on property reinsurance pricing trends.”
Southeast Asia and China are tipped as locations where more risk could be transferred through catastrophe bonds, due to growing awareness of risk and better data and modelling. The Monetary Authority of Singapore has been keen to develop the market and has a scheme which offers to fund all of an issuer's upfront costs in setting up a cat bond.
Fitch Ratings expects the profitability of London market insurers to remain under pressure in 2018. Although rates have improved following the 2H17 catastrophe losses, the pricing environment in the London market remains under pressure, due to excess capacity. The rating agency noted that while Catastrophe losses from Q3 2018 events are likely to be within annual catastrophe budgets, any further large losses in Q4 "could put further pressure on earnings".
A series of significant catastrophes in September – including Hurricane Florence, Typhoon Jebi, Typhoon Mangkhut, and the Indonesian earthquake – are poised to cause tens of billions in economic damage. Each of these events were also noteworthy since the majority of losses are likely to be uninsured, according to an Aon catastrophe report. "This once again highlights that whether a country is considered mature or emerging, there continue to be gaps in insurance coverage on either a market-wide or individual peril basis," said Impact Forecasting director Steve Bowen.
Posted: Monday, October 15th, 2018