2008 cat market update global reinsurance division ken radigan (212) 266 – 5992...
TRANSCRIPT
2008 Cat Market Update
2007 and 2008 Catastrophes
Global Reinsurance Division
Swiss Re: Natural catastrophes in 2007
Global Reinsurance Division
More than 20,000 fatalities Losses of roughly $70bn (US$) $28bn insured losses. 142 natural catastrophes and 193 man-made disasters.
Swiss Re: Natural catastrophes in 2007
Global Reinsurance Division
PCS: Natural catastrophes in 2007
Global Reinsurance Division
PCS: Natural catastrophes in 2008
Global Reinsurance Division
2008 Natural catastrophes
Global Reinsurance Division
Myanmar Cyclone Nargis China Earthquake
AIR Worldwide estimates that total losses to insured and uninsured property from the M7.9 earthquake that struck near Chengdu, China will likely exceed $20 billion USD
2008 Cat Market Update
2008 Reinsurance Market Update
Global Reinsurance Division
Guy Carpenter: 2008 Reinsurance Market Review
Global Reinsurance Division
Casualty treaty reinsurance market is softening in many areas. Driven by 5 years of underwriting profits. Difficult lines still subject to tough rating environment.
Guy Carpenter: 2008 Reinsurance Market Review
Global Reinsurance Division
Global Reinsurance capital increased to $129B in 2007. 20.4% higher than end of 2005. Retained earnings increased from $40.5B in 2005 to $59.3B in 2007.
Guy Carpenter: 2008 Reinsurance Market Review
Global Reinsurance Division
Stable Outlook from all rating agencies Strong balance sheets with record profits in 2006 and 2007. Threats: underwriting cycle, increase cat activity, subprime crisis
Reinsurance Discussion
2008 Reinsurance Market Expectations
Global Reinsurance Division
AON: Reinsurance Market Update Sept 2007
Global Reinsurance Division
AON: Reinsurance Market Update Sept 2007
Global Reinsurance Division
Reinsurance Discussion
Capital Markets
Global Reinsurance Division
Capital Markets (cat bonds and sidecars)
Global Reinsurance Division
$7.2 billion issued in 2007, $6.2 billion issued in 2006. Insulated from turmoil of broader credit markets. Diversifying perils Willing to support indemnity
Capital Markets (cat bonds and sidecars)
Global Reinsurance Division
How do they work?• Based on modeled statistics.• Investors assume risk and expect to make a profit.• ROL is multiple of estimated loss.• “Secured” reinsurance, ceded limit held in trust.
Example• $100M X $500M• Probability of attachment 1.0%.• Probability of exhaustion 0.75%• Expected loss 0.875M (LOL 0.875%)• Premium 5.0% + LIBOR,• ROL = 5.7 * LOL
Capital Markets (cat bonds and sidecars)
Global Reinsurance Division
Insurer Motivation
• Access to additional capacity• Multiyear terms• “Secured” reinsurance• Ideal for short term, high cat exposures
Investor Motivation• High returns• Uncorrelated Exposure• “Modelable” Exposure, easy to analyze and compare statistics• Easy to monitor aggregate exposures
Capital Markets (cat bonds and sidecars)
Global Reinsurance Division
Higher Costs• Secured Program• No Leverage• No Reinstatements• Third Party Modeling• Structure Fees (SPV)• “Uncertainty” charge
Time commitments Indemnity vs parametric vs PCS
• Timing concerns with Indemnity
Reinsurance Discussion
Miscellaneous Topics
Global Reinsurance Division
Miscellaneous
Reinsurance spreads narrowing, worldwide credit spreads and equity spreads are widening. Insurers more likely to use reinsurance to finance risk.
Capital Markets are currently providing 10 to 25 percent of their catastrophe capacity. This is expected to expand.
Regulatory, rating agency, investor and management emphasis on ERM.
Global Reinsurance Division
Reference Sources:
Swiss Re: “Natural catastrophes and man-made disasters in 2007.”
Guy Carpenter: “2008 Reinsurance Market Review”
AON: “Reinsurance Now Materially Reducing Insurer Cost of Capital, Reinsurance Market Update, September 2007”
Deutsche Bank: “2007 Year-end Catastrophe Market Review”
Global Reinsurance Division
Reinsurance Discussion
Open discussion
Global Reinsurance Division