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Catastrophe bond capacity is maturing, and not much of it is coming back. In the first quarter, $1.8 billion in cat bond risk capital matured, and only $508 million returned in the form of new issuances, according to Thomson Reuters. This quarter, $2.77 billion is maturing, and the absence of first-time issuers makes it unlikely that the market will replace it all. More than a billion of it was from State Farm's Merna Re transaction. The successor to it has already been issued, cleverly named Merna Re II, at only a fraction of the previous bond.
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FeedCatastrophe Bond Issuance Gap Is upon Us
Mexican Earthquake Won't Move Reinsurance Market
It doesn't look like we'll see a replay of Chile in Mexico. The 7.2 magnitude earthquake on Sunday, which was felt all the way into California, is likely to have caused economic damages of $1 billion and insured losses of $300 million, according to catastrophe modeling firm EQECAT. It will probably not have a significant effect on the industry, as a result, because of the relatively low level of catastrophe losses."Although damage will have occurred in both Mexico and the U.S., the community of Mexicali is the largest urban area affected by this event, and damage there is expected to be widespread," EQECAT in a Monday statement. El Centro, California was the largest U.S. city affected by the quake, though it sustained less damage, according to estimates, than Mexicali.
The earthquake was not covered by the Multicat Mex catastrophe bond, which was created by the World Bank and Swiss Re (SWCEY) to provide protection from earthquakes and hurricanes formed in both the Atlantic and Pacific Oceans for three years. The $290 million bond is sponsored by the Fund for Natural Disasters of Mexico.
Catastrophe Bonds: Same but Different in 2010
This year, you can expect experienced catastrophe bond issuers in the insurance and reinsurance sectors to dominate the market, as they did in 2009. Instead of replacing maturing bonds, however, many will be turning to new transactions. Fresh moves are likely, therefore, in a sector that could double last year's issuance total and at least approach the 2007 record of $7 billion in risk capital.Eighteen tranches of eight cat bonds are set to mature in the second quarter, according to the Thomson Reuters Insurance Linked Securities Community. On the eve of hurricane season in the Gulf of Mexico, $2.77 billion in risk capital will mature, including State Farm's $1.2 billion Merna Re transaction, the largest transaction in the history of this form of risk transfer. Only part of Merna Re will be replaced by Merna II, with industry trade publication Trading Risk, which is put out by the Insurance Insider, reporting that the $250 million successor to Merna Re has been upsized to $700 million.
Continue reading Catastrophe Bonds: Same but Different in 2010
State Farm Planning Monster Cat Bond
Merna Re, the largest catastrophe bond of all time, is set to mature in June, and State Farm is already putting together its replacement, the creatively named Merna Re II. The successor, planned for issuance in April, is said to be for $400 million in risk capital, though investor demand could push it as high as $700 million. This still pales in comparison to the $1.2 billion that the original brought in the door.
If State Farm is able to stimulate demand for Merna Re II, which would protect the company from non-California earthquake risk in the U.S., it will be third cat bond to come to market in 2010, which is expected to be a strong year for this form of risk transfer. The cat bond market fell silent after the near-collapse of American International Group (AIG) in September 2008 but was still the third busiest in terms of capital issued in the history of the cat bond market. Heading into 2009, prospects for the cat bond space seemed uncertain, but a robust fourth quarter eventually resulted in a year-over-year increase, driven mostly by repeat issuers.
Assessing the Tab for Q1 Catastrophes
Catastrophe modelers, insurers and reinsurers are still sorting out the damage from Windstorm Xynthia in Europe and the earthquake in Chile. Taking only the highest of high-end estimates, the damage from these two catastrophes could exceed $12 billion, resulting in fairly steep property-catastrophe losses long before hurricane season begins. With three more major property reinsurance renewals remaining for the year -- at April 1, June 1 (Florida) and July 1 -- there is plenty of time for the impact of these events to be absorbed into reinsurance pricing.
Pensions Consider Insurance Securitization Finance Because You Refuse to Die
The odds that you'll have a long, healthy life are better than ever ... and that creates a pretty hefty problem for pension funds. They need to find new ways to meet their obligations in a turbulent market, and the risk that you'll hang on forever is approaching every day. So, unless we're able to pass legislation encouraging mass suicide among the Baby Boomers (it's a joke, people, read Christopher Buckley's Boomsday to see how it shakes out), pension fund managers have a hefty dose of risk to offload -- fast. They're looking at the insurance-linked securities market as a way to handle the problem.All joking aside, pension funds and insurers are translating to total pension liabilities of $19 trillion in the U.S. and $3 trillion in the UK, according to a Reuters report using data from International Financial Services London. And, an increase in longevity by one year could translate into a 3% jump in liabilities. Put simply, the IFSL's data means another $600 billion in the U.S. and $90 billion in the UK. Basically, everything we do to stick around longer (not that I'm discouraging it) leads to a higher and higher price tag.
Continue reading Pensions Consider Insurance Securitization Finance Because You Refuse to Die
Cat Bond Market Shift Favors Goldman Sachs
Nine catastrophe bonds have matured so far in the first quarter of 2010, removing $1.8 billion in risk-transfer capacity, according to data from Reuters. The insurance industry has compensated with $508 million in new cat bond risk capital, with the busy fourth quarter helping to absorb what is maturing now. Only one cat bond has closed so far this year, The Hartford's (HIG) $180 million Foundation Re III. But, the first quarter is usually a quiet one for the cat bond market.
It partly replaces the $105 million in protection that Foundation Re D afforded. Swiss Re (SWCEY) and SCOR (SCRYY) are also among the insurance companies with bonds maturing that have at least partial coverage from new cat bond issuances. Another four bonds have matured, however, with no new related issuance, affecting Munich Re (MURGY), AXA (AXA) and others.
Catastrophe Bond Market Hits Target, Records Possible in 2010
The end of a year means a rush of data from the insurance and reinsurance industries, as treaties are renewed for the coming year. Catastrophe bonds are a part of this annual orgy of data production, as a flurry of activity occurs in December, with the industry's commitment to this form of alternative property-catastrophe risk-transfer setting the tone for the year to come. The cat bond market isn't big enough to push reinsurance rates, but you can generally get a sense of what the coming year will look like for cat bonds based on pricing for traditional reinsurance.
Continue reading Catastrophe Bond Market Hits Target, Records Possible in 2010
Trading on disaster: Two new cat bonds come to market
The catastrophe bond market is still running strong. This alternative to reinsurance, in which insurers can package up their risk and sell it to investors, may be a small part of the market, but carriers are clearly committing to it.
Swiss Re (SWCEY) and Scor (SCRYY) both have launched cat bonds, for $150 million and $75 million, respectively. This brings the fourth quarter issuance total to $840 million and the 2009 year-to-date tally to just over $2.6 billion, based on information from Artemis.bm and Guy Carpenter's GC Capital Ideas.
Continue reading Trading on disaster: Two new cat bonds come to market
Analyst upgrades, downgrades and initiations: ARUN, MOS, POT, AGU, EGLE, DO, MON, SWCEY, TDC and ABC
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Analyst upgrades: - Jefferies upgraded Aruba Networks (NASDAQ: ARUN) to Buy from Hold following the company's Q3 results to reflect improved visibility. The firm raised its target price to $6.50 from $3.
- Citigroup upgraded Mosaic (NYSE: MOS) and Potash (NYSE: POT) to Buy from Hold and Agrium (NYSE: AGU) to Hold from Sell as it believes stronger grain fundamentals more than offset China contract risk. The firm raised its target on Mosaic to $72 from $48, on Potash to $145 from $83 and on Agrium to $55 from $36.
- Fulton Financial (NASDAQ: FULT) Was upgraded to Market Perform from Underperform at Keefe Bruyette.
- Rio Tinto (NYSE: RTP) was raised to Neutral from Sell at Goldman.
- Noble Corp. (NYSE: NE) was upgraded at Deutsche Bank to Buy from Hold.
Swiss Reinsurance quarterly profit plunges 87% on deep write-downs
It is shaping up to be another tough day for the market as traders continue to express concerns over a possible recession, disappointing earnings numbers, surging crude oil prices and persistent weakness for the U.S. dollar. However, not all the companies are joining the general market anxiety, and Swiss Re made strong gains, trading up 4.9% in the Zurich exchange, despite a plunge of 87% in its fourth-quarter net profit as investors were encouraged by its positive earnings outlook.The world's largest reinsurer announced that its quarterly profit had dropped to 170 million Swiss francs ($161.7 million), dragged down by higher write-downs related to bad loans. Its profit numbers were down from 1.3 billion reported in the same period a year ago.
Continue reading Swiss Reinsurance quarterly profit plunges 87% on deep write-downs
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