7 // THE DISASTER GAP: HOW INSURERS AND THE CAPITAL MARKETS CAN HARNESS BIG DATA TO CLOSE THE GAP
US NATURAL CATASTROPHE FOCUS
The bulk of alternative capital is currently focused on US natural catastrophe perils and insurance products that seek to transfer this risk to the capital markets. To date, these perils have offered the best returns and are also arguably the best understood thanks to sophisticated probabilistic catastrophe models to help underwriters assess the risk and their exposure.
“The quality of data is a key issue here and that’s why we’re seeing new capital investment in property cat,” says Fitch’s Chris Waterman. “New capital has been heavily targeted towards the US, which is where good quality, granular data is available over a longer period.”
US hurricane risk continued to be the main peril ceded to the ILS market in 2013. However, a number of cat bond issuances stood out by taking on a new range of perils, demonstrating investor appetite for risks in new areas. Non-peak US perils such as thunderstorms and wildfires featured in some transactions, as did secondary perils arising from earthquakes, such as liquefaction and tsunami.
In 2013 issuances also included MetroCat Re, the first cat bond for storm surge risk, and AIG’s Tradewynd Re, which has a broad geographical footprint for named storms, including the Gulf of Mexico, providing cover for exposures there such as offshore energy and marine. Bosphorus 1 Re was structured to cover earthquakes in the Istanbul region of Turkey on behalf of the Turkish Catastrophe Insurance Pool (TCIP).
“When we went to the market the investors welcomed us extremely well as we offered them diversification,” says Ismet Güngör, coordinator of the TCIP at Eureko Sigorta. “From the investors’ point of view the cat bond market needs to have some other risks in the market to diversify their portfolio – so the capacity is there – they want to diversify their portfolio not only in terms of geography but also in terms of the risk.”
“When we went to the market the investors welcomed us extremely well as we offered them diversification.”
Ismet Güngör, coordinator of the Turkish Catastrophe Insurance Pool at Eureko Sigorta.
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