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Capital market investors that participate in the insurance-linked securities (ILS) or reinsurance linked investing space are increasingly asking questions about the potential impacts climate change could have on the risk landscape.

This is according to Adam Beatty, Managing Director of Nephila Advisors, a division of the world’s largest ILS manager, Nephila Capital, who recently spoke with Clear Path Analysis, publishers of the annual Insurance Linked Securities for Institutional Investor’s report.

Beatty explained that investors in the ILS and reinsurance space are increasingly discussing the changing climate, and more specifically, the impact of climate change within the catastrophe risk sector and whether climate change is changing the current risk landscape.

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The recently renewed Philippines parametric natural disaster insurance cover was completed at $390 million in size, around double the prior year, and the World Bank has confirmed that work is underway to issue a catastrophe bond to extend disaster protection for the country.

We covered this renewal back in December, when we explained that insurance-linked securities (ILS) investment fund manager Nephila Capital and Swedish state sector pension fund AP3 both participated in the $390 million renewal of the Philippines regional parametric disaster insurance program.

Joining the two ILS investors in providing capacity to back the renewal of the natural disaster cover, were reinsurance firms Munich Re, Swiss Re, AXA, Hannover Re, Hiscox Re, Allianz, and SCOR.

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Longer-term investors in insurance-linked securities (ILS) and reinsurance linked assets are expected to remain committed to the sector despite the impact of losses over the last two years, with a resumption of ILS market growth anticipated once recent losses have been digested.

Reporting in its latest Reinsurance Market Outlook, Aon highlights the strong growth that was seen in alternative capital through the first nine months of 2018, as the ILS market grew in the wake of the 2017 hurricane events.

The traditional reinsurance market shrank a little over the same period, largely due to rising interest rates and a stronger U.S. dollar, the broker notes.

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Reinsurance firm Swiss Re continues to expand its parametric risk transfer activities, this time with the launch and backing of the first county-level natural catastrophe index insurance product in China.

Swiss Re is backing and reinsuring a county-level index insurance cover for Mao County in Sichuan province, Financial News reported, the first parametric product to drop-down to the county level of coverage in China.

Swiss Re has previously backed province level parametric or index insurance products covering China catastrophe events (such as in Guangdong), but as data sources improve and become more granular and technology advances, the coverage can be calibrated to a smaller regional level.

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Insurance-linked securities (ILS) and insurance-linked investments (ILI) in general have been identified as an example of a Sustainable Development Investment, according to experienced ILS investors Dutch pension fund manager PGGM and pension PFZW.

As insurance-linked securities (ILS) and instruments such as catastrophe bonds provide risk capital that responds to the occurrence of catastrophes and natural disasters, providing much-needed financing and liquidity when the worst happens, they are increasingly being viewed as an example of a socially and environmentally responsible asset class.

In fact, the ILS market provides products which offer social benefits to society, by taking on peak risks to support provision of insurance and paying out to help in financing recovery, but also environmental benefits, by helping to build resilience to disasters and climate change.

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Asset management giant PIMCO (Pacific Investment Management Company LLC), which is owned by Allianz S.E., is targeting the insurance-linked securities (ILS) and reinsurance linked investments space with the hiring of Rick Pagnani as Head of PIMCO’s ILS Business.

PIMCO is one of the leading fixed income investors in the world, with an astonishing $1.72 trillion of assets under management as of the fourth quarter of 2018.

The asset manager has been tracking the ILS sector for a number of years and it has long been suggested that the firm could take a closer interest in the asset class.

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The CCRIF SPC (formerly named the Caribbean Catastrophe Risk Insurance Facility) has expanded its parametric risk pool to include Panama, as the Central American country joins the provider of parametric sovereign disaster risk transfer products and signs up for excess rainfall protection.

The CCRIF is a multi-country risk pool, providing parametric disaster insurance at the sovereign level for perils including earthquakes, hurricanes and extreme rainfall events, and tapping the reinsurance and capital market for risk pool support.

The facility has been steadily growing and with Panama now signed up CCRIF has two Central American members and a risk pool that now includes exposures from 21 countries (19 from the Caribbean).

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The Chairman and Chief Executive Officer (CEO) of collateralised reinsurer Oxbridge Re Ltd., Jay Madhu, explained that the firm’s recently launched sidecar vehicle diversifies its revenue streams and risk.

Oxbridge Re announced plans for its sidecar vehicle, Oxbridge Re NS Ltd., in late 2017 after registering the company in the Cayman Islands in December of 2017 as an exempted company.

The company’s Chairman and CEO said earlier this year that its newly licensed sidecar vehicle, which essentially enables the company to access capital markets capacity to augment its underwriting structure, shows that the firm has ambitions to be more of an asset manager.

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The launch of the Lion Rock Re Ltd. sidecar by Hong Kong domiciled Peak Reinsurance Company Limited (Peak Re) was well received by the ILS investor community and the company is looking forward to expanding its relationship with the capital markets in the future.

Lion Rock Re Ltd., a recently established Bermuda special purpose insurance vehicle, is the first Asian reinsurance sidecar deal, providing Peak Re with a source of capital markets backed collateralised retrocession.

Following the announcement of the launch of the sidecar vehicle, Artemis spoke with the reinsurer’s CEO, Franz Josef Hahn, and also Lawrence Cheng, Managing Director, Underwriting, Peak Re.

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Lloyd’s and Bermuda insurance and reinsurance company Neon Underwriting has successfully renewed its UK insurance-linked securities transaction, which is akin to a sidecar, with a slightly enlarged $77 million issuance of notes from the NCM Re (UK PCC) Ltd vehicle.

Last year, Neon was the first to register and receive approval from the UK’s Prudential Regulation Authority (PRA) for what became the first insurance-linked securities (ILS) vehicle to transact business in the United Kingdom, NCM Re.

NCM Re entered into a $72 million quota-share reinsurance agreement with Neon’s Lloyd’s of London syndicate in that transaction, thus acting as a collateralised reinsurance sidecar to the syndicate, augmenting its capacity utilising third-party capital market investor funding.

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