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Home / Insurance / The increase in the market for cat bonds will continue in 2021

The increase in the market for cat bonds will continue in 2021



The emergency bond market saw robust activity last year as new sponsors and tightening of retrocessional reinsurance capacity helped sell the sector, and the trend is expected to continue. invested and the fourth quarter totaled $ 3.7 billion was a record, according to a report published last week by Aon Securities, a unit of Aon PLC.

New sponsors helped drive cat leash activity by 2020, says Des Potter, a London-based CEO of GC Securities, part of Guy Carpenter & Co. LLC.

"There are 11 new sponsors who came to the disaster bond market during the year, and it's really encouraging," he said.

New cedents, including first-time sponsors Alphabet Inc., the parent company of Google LLC, and the Los Angeles Power and Water Department entered the market in 2020 and helped drive growth, says Paul Schultz, Chicago-based CEO of Aon Securities, a unit for Aon PLC.

Public entities, such as the LA tool, often use a parametric structure in their coverage.

“There is generally more confidence in parametric structures today. , and these are the types of structures that institutions usually use, ”says Potter. "As sponsors become more comfortable with parametric structures, there are potential opportunities to transfer this type of risk to the emergency bond market." For example, the MetroCat bond of the New York City Metropolitan Transportation Authority issued last year was based on measured storm surge.

The parametric bond structure is "still in its infancy", Mr Schultz said, but he expects "fairly strong growth around parametric products in general" in both traditional reinsurance and capital markets as they can be used to cover exposures that are more difficult to place and "offer an additional market for public entities to trade tough risks."

Mr. Schultz said that a tightening of the insurance-linked securities market is a source of capacity for products that may be "more limited" in other markets, such as parametric wildfire coverage.

Mr. Schultz said that a tightening of the insurance-related securities market is a source of capacity for products that may be "more limited" in other markets, such as parametric maturity coverage. "We all know that wildfire capacity is one of the limited risks in the market," he said.

Power Protective Re Ltd. 2020-1

was launched in early November and settled in mid-December 2020, according to Aon. It was the first disaster bond issued by the Los Angeles Power and Water Department, the largest municipal energy utility in the United States, and secured $ 50 million in coverage for the risk of California wildfire for the public entity. The three-year transaction was structured with a parametric trigger, based on reconstruction cost values ​​within a wildfire perimeter, using data from Eqecat Inc.'s fire risk database, according to the Aon report.

Power Protective Re is registered as a special insurance company in Bermuda, according to notifications from the Bermuda Stock Exchange. The Los Angeles Department of Power and Water did not immediately respond to a request for comment.

More reinsurers are using emergency bonds for retrocessional coverage, Potter said, noting that six new reinsurers sought such coverage by 2020. A contributing factor was expected. tightening of retrocessional capacity through January 1, 2021, renewals, he said.

Aon's Mr Schulz also said that more reinsurance companies bought cat bonds for retro coverage. "Part of this was probably due to the fact that at some point in the year there was a concern about whether there would be sufficient capacity (ultimate net loss retrocession), so reinsurers issued bonds to supplement what they bought in the ultimate

Aon Securities expects the momentum set in 2020 to continue until 2021. "The forward calendar and pipeline of transactions we know, all data supports another year of increased emissions," said Schultz. [19659002] "We can look forward to the first two quarters with some confidence given the timeline required to structure the transaction," Potter said. "Our pipeline is relatively active, and we believe we will probably see good emissions in the first half of the year." Catalog

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