6 RENDEZ-VOUS
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MONTE CARLO 2011
C AT BONDS
Cat bond appetite grows despite claims Q1 bonds issue breaks previous records July issue marks break from US storms Capital market appetite for insurance risk continues to build in 2011, with cat losses proving a minor hiccup. The first quarter issuance of catastrophe bonds broke records, securing $1.02bn of new and renewal risk transfer capacity, according to Guy Carpenter. The four issuances in Q1 securitised US hurricane risk perils – although the big story of the first quarter was the Tohoku earthquake in Japan. “In the aftermath of one of the largest earthquakes in recorded history, the cat bond market continued to trade in an orderly and disciplined fashion,” says Guy Carpenter chief executive of global analytics and advisory Bill Kennedy. Activity in the second quarter was lighter – a reflection of unprecedented natural catastrophe losses coinciding with uncertainty surrounding new cat model releases, according to Willis. Only four deals came to market (totalling $592bn),
“After one of the largest earthquakes in history, the market continued to trade in an orderly fashion” Bill Kennedy, Guy Carpenter down from the same period in 2010 when eight cat bonds totalling $2.1bn were issued. Nevertheless, investors remain eager to invest in cat bonds, reflecting a growing comfort with insurancelinked securities (ILS). “Investors have cash to invest and remain keen on risk in cat bond form, but are
somewhat starved of new issuance, particularly non-US wind-exposed deals,” says Willis Capital Markets & Advisory head of ILS Bill Dubinsky. In July, the first bond of 2011 to be purely unexposed to US hurricanes was issued. Queen Street III Capital Limited was structured and arranged by Munich Re to provide the reinsurer with $150m of European windstorm protection. The risk modelling was developed by AIR Worldwide and losses will be set by PERILS AG. “This transaction was priced significantly lower than the initial price guidance, while tripling in size from the initially announced transaction size. It highlights investor demand for diversifying peril exposure away from US hurricane,” says GC Securities global head of ILW distribution Chi Hum, whose company placed the cat bond. “We found that investors – none of which were reinsurers – were eager to support a repeat issuer with diversifying peril risk.”
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THE FENCE How will recent events affect cat bonds? THOMAS BLUNCK, MUNICH RE “Munich Re is taking advantage of the favourable market environment for cat bonds to obtain cover for the peak risk ‘Storm Europe’.”
HAIR SCARE Lloyd’s developed a policy to cover loss of chest hair that could adversely impact one’s image or career. Under the terms of the policy, the policyholder would have to lose more than 85% of his chest hair through an injury to his chest in order to make a claim.
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BILL DUBINSKY, WCMA “The cat bond market should see an VS uptick in deals in the second half of 2011 as investors get more certainty around how the new RMS hurricane model will affect pricing.”
BRACE YOURSELF The smile of America Ferrara, star of the hit television show Ugly Betty, was insured for $10m. The policy was bought by teeth-whitening product Aquafresh White Trays as part of a promotion involving the celebrity.
QUESTION TIME WITH ... IAN CL ARK Ian, how have you found this year’s Rendez-Vous? IC: As enjoyable, entertaining and draining as ever. An interesting set of themes seems to be developing, with the flight to scale being at the top of many people’s strategic agenda, alongside a watching brief on the changes that are taking place in the wholesale broking market. Can you explain the flight to scale? IC: We seem to be in a position where stock market analysts are attributing premium to scale with many of the smaller floated stocks in both sides of the Atlantic trading at a discount to their larger peers. Given that many of these businesses are trading healthy discount to their net asset position, it is difficult to see how shareholders are getting an accurate return on their investment. This is quite likely to result in some consolidation among the smaller players as they seek greater scale. Is there really the drive to merge when trading below book? IC: When trading individual parcels of shares, this will reflect the discounts to net asset value. However, when a transaction is contemplated there is a premium for ownership and control, which will in effect take the price above net asset value. What’s been your best night out this year? IC: Chèvre d’Or in Èze, which was absolutely stunning on both the eyes and the wallet. Ian Clark is an insurance partner at Deloitte
TONGUE TWISTER In 2009, Gennaro Pelliccia, Costa Coffee’s chief taster, insured his tongue for £10m. The average tongue has approximately 10,000 taste buds, which means Costa has in effect insured each on Pelliccia’s tongue for £1,000.
13/09/2011 11:31:20