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ILS Table 2: ILS Deals Rated Through June 30, 2014


Transaction name


Vitality Re V Ltd. Vitality Re V Ltd.


East Lane Re VI Ltd. Riverfront Re Ltd. Kilimanjaro Re Ltd.


Kilimanjaro Re Ltd. Everglades Re Ltd. Sanders Re Ltd.


Sanders Re Ltd. Sanders Re Ltd. Aozora Re Ltd. Cedent


Aetna Life Ins. Co. Aetna Life Ins. Co.


Operating Cos. of Chubb Corp.


Great American Ins. Co.


Series/class Term (years)


2014-1 Class A 5 2014-1 Class B 5


2014-1 Class A 4 2014-1 2.75 Everest Reinsurance Co. 2014-1 Class A 4


Everest Reinsurance Co. 2014-1 Class B 4 Citizens Property Ins. Co. Allstate Ins. Co.


2014-1 Allstate Ins. Co. Allstate Ins. Co


Sompo Japan Nipponkoa Ins. Co


3 2014-1 Class B 4 2014-1 Class C 4 2014-1 Class D 4 2014-1 Class B 3


As the competition increases, terms and conditions on the cat bond side are broadening. The Residential Re Series 2014-1 bond (which was not rated) provided indemnity protection against unmodeled risks such as meteorite impact and volcanic eruption on an annual aggregate basis, although the unmodeled risks by themselves were not expected to result in a triggering event. The question is whether looser underwriting standards will hurt ILS investors searching for diversification and yield.


Exposure to U.S. hurricanes, not surprisingly, remains the dominant peril covered by cat bonds (see Chart 7). For the first half of this year, all but $300 million in issued cat bonds had hurricane as the sole or primary covered peril. In 2013, hurricane was the sole or primary covered peril in $3.9 billion of the $5.2 billion of cat bonds we rated. A few of the new issuances that came to market during the past two years provided some sought-after opportunities for investors to diversify their portfolios into non-U.S. peak perils such as


36


Issuance amount (mil. $)


140 60


270 95 250 200


1,500 330


115 305 JPY 100 Covered perils


Covered region Rating


Named storms, earthquakes, severe thunderstorms and winter storms


Named storms, earthquakes, severe thunderstorms and winter storms


Named storms and earthquakes


Named storms and earthquakes


Hurricane


Named storms and earthquakes


Named storms and earthquakes


Named storms and earthquakes


Typhoon


“We expect the market to continue growing, albeit not at the current rates.”


Japanese typhoon, Japanese earthquake, Turkish earthquake, European windstorm, Canada earthquake, and Caribbean hurricane and health claims payments. However, depending on the investor profile, geographic diversification is not always a necessity. For example, for a pension fund that allocates a very small amount of its assets to catastrophe risk, there is limited additional benefit to diversifying the catastrophe portfolio. In other words, almost all of the diversification benefit is already gained by entering the asset class even if it is regionally concentrated, leaving only marginal benefit for diversification within the asset class.


Interest spread


Multiple to E/L


Medical benefits claims U.S. BBB+ TMM+175 bps 175 Medical benefits claims U.S.


U.S. U.S. U.S.


U.S. U.S. U.S.


U.S. U.S. BB+ TMM+250 bps 11.9 BB+ TMM+275 bps 3.35 BB- TMM+400 bps 3.64 BB- TMM+475 bps 2.97


BB- TMM+450 bps 3.08 B TMM+450 bps 3.26 BB+ TMM+300 bps 4.17


BB TMM+325 bps 3.73 BB TMM+390 bps 3.45 Japan BB


JPY MMF+200 bps


3.85


Growth And Competition Will Likely Continue We welcome the recent growth that we have seen in this sector. We expect the market to continue growing, albeit not at the current rates. In our view, growth should come from various avenues such as increased take- up rates in disaster-prone areas, disaster protection purchased by governments, and product innovations through underwriting joint ventures. The current competition among market players has been leading to a welcome reduction in prices and a loosening of terms for cedents. However, we caution that for the alternative market to maintain the credibility it has gained after all this time, growth should not come at the expense of looser underwriting discipline and less due diligence. 


Maren Josefs


London, (44) 20-7176-7050 maren.josefs@standardandpoors.com


Gary Martucci


New York, (1) 212-438-7217 gary.martucci@standardandpoors.com


Global Reinsurance Highlights 2014


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