ILS Intelligence
THE STORM BEFORE THE CALM
ILS Indices, during the fourth quarter of the year all four categories posted gains: the All Bond and BB-Rated Bond indices increased by 1.58 percent and 1.71 percent, respectively, while the US Hurricane Bond and US Earthquake Bond indices increased by 1.68 percent and 0.73 percent. While the indices were all slightly lower compared with the same quarter in 2010 due to mark-to-market losses, the performance of ILS remained strong in the context of the severe global catastrophe losses, which had a significant negative impact on the profitability of insurers and reinsurers.
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According to Aon Benfield’s Impact Forecasting team, global natural disaster activity in 2011 comprised 253 separate events which, in aggregate, gave rise to an economic loss of $435 billion and an insured loss of $107 billion. In terms of economic losses, 2011 was the costliest natural disaster year on record; for insured losses, it was second only to the $120 billion of losses experienced in 2005, caused mainly by the hurricanes Katrina, Rita and Wilma.
From an ILS perspective, of particular note during the year was the
full loss of three catastrophe bonds: Muteki Ltd Series 2008-1 Class A, following the devastating Japanese earthquake on March 3, and Mariah Re Ltd Series 2010-1 and Series 2010-2 following the aggregation of severe convective storms (heavy rain and strong winds, sometimes leading to tornados) in the US.
The Great Eastern Earthquake in Japan killed nearly 16,000 people, and
resulted in more than one million structural claims and an economic loss of around $210 billion. Impact Forecasting estimates that total insured losses for the earthquake will be $30 billion to $40 billion, with around $20 billion attributed to personal lines losses. Recoveries from reinsurers are expected to remain at around $10 billion—lower than expected for an event of this magnitude.
2011 was one of the most active tornado years on record in the US. According to Impact Forecasting, the Storm Prediction Center (SPC) in Norman, Oklahoma, experienced approximately 1,718 tornadoes through late December compared with 1,282 in 2010, 1,156 in 2009 and
42 | INTELLIGENT INSURER | Spring 2012
espite a year of heavy catastrophe losses for the re/insurance industry, the investment case for insurance-linked securities (ILS) remained robust during 2011. According to Aon Benfield’s
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