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There is a potentially big opportunity for the insurance-linked securities (ILS) markets to develop parametric cat bonds that could cover some of the growing risks in Eastern Europe and Western areas of Asia, according to Kirill Savrassov, chief executive of PhoenixCRetro.

Savrassov told Monte Carlo Today that for a wide range of historical reasons insurance penetration remains very low in various countries of the former Soviet Union, as well as Turkey and parts of former Yugoslavia. Those areas are highly vulnerable to earthquakes, such as the ones that devastated Armenia and Tashkent over the past 50 years.

Savrassov pointed out that a huge amount of investment is being poured into the region by the Chinese government, which is seeking to expand its economic footprint with its Belt and Road Initiative, an economic project to essentially recreate the ancient Silk Road that linked Europe to Asia.

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Kirill Savrassov, chief executive officer of Phoenix CRetro Re, says the reinsurer’s foray into sovereign catastrophe bonds is a win-win solution for governments in earthquake-prone regions, where insurance penetration has been historically low.

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The U.S. state of California is getting increasingly serious about the use of insurance or risk transfer to provide financing against climate risks and financing to support climate adaptation and resilience building.

The state is already in the process of putting into place legislation that would allow it to purchase insurance, reinsurance, insurance-linked securities (ILS), or other alternative risk transfer (ART) structures, to help fund the economic burden from natural disasters.

This legislation stalled recently though, as arguments emerged that the state can already purchase risk transfer.

Risk managers & C-Suite lack understanding of parametric risk transfer

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The insurance and reinsurance industry has much more to do to promote parametric risk transfer and other alternative risk strategies, as both risk managers and the C-Suite of major corporations lack a clear understanding of its benefits.

The increasing availability and abundance of data and advanced analytics tools, combined with alternative risk financing mechanisms, can provide an opportunity to risk managers.

Parametric triggers can bridge the gap between the two.

Is the ILS market ready to tackle cyber?

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A lack of historical and contextual data continues to hinder the entry of the insurance-linked securities (ILS) market into the cyber re/insurance space, and with ‘silent’ cyber exposures adding further uncertainty, it might be easiest for the ILS sector to focus on affirmative cyber, at least to begin with.

This is according to Co-Head of Property Claim Services (PCS), Tom Johansmeyer, who recently spoke with Artemis about the ongoing and developing NotPetya cyber-attack and the potential for ILS to participate in the expanding cyber risk market.

With an economic impact of at least $10 billion, according to the White House, and insured losses of at least $3 billion, according to PCS, the NotPetya cyber catastrophe event remained mostly a property event for the first two years of development.

Gradual pick-up of ILS transactions expected in Asia: Fitch

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Insurance-linked securities (ILS) and catastrophe bond activity is expected to gradually accelerate in the Asia region, providing investor interest in the ILS asset class remains strong, according to Fitch Ratings.

While insurance-linked securities (ILS) and collateralized forms of reinsurance in general are familiar concepts in North America and Europe, there has still been relatively limited activity in Asia by comparison, although the understanding of the alternatives available is increasing all the time.

Reinsurance capacity and pricing remains largely stable across Asia, according to Fitch, outside of certain loss affected pockets, with access to the capital markets helping to increase stability.

 

ILS has “superior historical performance” over the long-term: Researchers

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Recent analysis on the return drivers of insurance-linked securities (ILS) shows that over a 15-year period, ILS funds have recorded a superior historical performance when compared with other asset classes.

In a recent article, Alexander Braun and Martin Eling of the Institute of Insurance Economics, University of St. Gallen in Switzerland and Semir Ben Ammar, Deliotte AG in Switzerland, discuss the return drivers of ILS while at the same time highlighting the inability of traditional factor models to explain the return characteristics of ILS funds. We spoke with them to gain further insight into ILS fund performance.

According to their report, existing factor models cannot explain the returns of ILS funds.

Cobbs Allen combines investment bank & insurance broker in CAC Specialty

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Independent U.S. risk management and insurance broker Cobbs Allen has launched a new unit focused on bringing together investment banking and insurance to create risk transfer solutions for corporates and private equity sponsors.

The specialty broking unit CAC Specialty represents the “next wave in the long-term convergence of insurance and capital markets by combining structured finance solutions with insurance broking capabilities,” the company said.

It’s an interesting time in the broking world, as convergence of risk management, risk transfer, investment banking, structured and capital efficiency products continue to bring insurance, reinsurance and asset management closer together.

Asian Development Bank launches contingent disaster risk financing solution

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The Asian Development Bank (ADB) has launched a new contingent natural disaster risk financing solution which it has named contingent disaster financing (CDF), as it seeks to deliver rapid paying risk capacity for its members after they experience significant natural catastrophe events.

Contingent disaster financing (CDF) is a mechanism by which funding can be released quickly to ADB members in support of their budgets after disaster strikes.

It’s designed to ensure they can recover better, without having to take financing from their broader budgets

Lekima the second most costly China typhoon as estimate hits $7.4bn

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Typhoon Lekima is without doubt set to become one of the most expensive natural disaster events to strike China in recent years, with the latest economic damage estimate of approximately US $7.4 billion placing the storm as the second most expensive typhoon to hit China ever.

Typhoon Lekima came ashore in Zhejiang province China as a Category 2 equivalent typhoon, having weakened after passing the Japanese Ryukyu islands.

Update: An early estimate of insured losses from the storm has been pegged at US $855m+ by AIR Worldwide.

Update: Economic loss figures from official sources increased to CNY 53.72 billion, US $7.63 billion on August 15th.