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Catastrophe risks and catastrophe risk management
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Cat bond activity remains strong in Q3

Catastrophe bond activity was healthy during the third quarter of 2015, according to GC Securities, confirming that the capital markets are continuing to influence risk transfer provision for natural catastrophes. June to September 2015 was the fourth highest third quarter catastrophe bond issuance on record.

The quarterly cat bond update from GC Securities reports $650m cat bonds executed from in Q3, bringing the total for 2015 to 30 September to $4.5 billion. Total outstanding cat bonds have fallen slightly – just under 5% from record 2014 year-end.

“Pricing generally held steady with investors spending time on portfolio management,” said the report, adding: “Ample capital remains available and conversations with managers indicate most are continuing to grow pragmatically, grow assets under management or hold at constant levels.”

US perils are still the bedrock of the cat bond market, with more than 70% of existing contracts exposed to US hurricanes and earthquakes. Diversification develops gradually, but Cory Anger, Global Head of ILS Structuring, GC Securities expects to see new perils, territories, protection structures and sponsors emerging.

Evidence in the third quarter comes from the successful execution of Acorn Re Ltd., which provides earthquake protection from British Columbia, through several US western states, to the states of Baja California, Baja California Sur and Sonora in Mexico.

Another notable transaction in the third quarter of 2015 was the Bosphorus Ltd., series notes that provide the Turkish Catastrophe Insurance Pool (TCIP) with $100m protection for three years for earthquakes in the Istanbul region.

The full briefing is available at www.GCCapitalIdeas.com

Lee Coppack's insight:

This report supports the bearish views on the profitability of traditional reinsurance in a low interest rate environment. The cat bond market is probably now sufficiently resilient that one large loss would not make a significant dent in interest.

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EIOPA and Buffet share bearish views on reinsurance

 

As the international insurance market gears up for the holidays and the 1 January reinsurance contract renewals, the current state of reinsurance is bringing forth voices from various lands. In its latest financial stability report, The European Insurance and Occupational Pensions Authority (EIOPA) says reinsurers must maintain “risk-adequate” pricing at the January reinsurance renewals, despite a continuing surplus of supply over demand.

Warnings from financial watchdogs such as EIOPA, which has no supervisory powers, are not that unusual. Perhaps more telling was the news that Warren Buffet’s Berkshire Hathaway this month continued to reduce its holdings in Munich Re. They are now down to 4.6% from 9.7% and had once been as much as 12%. Reinsurance had been one of Berkshire Hathaway’s money makers, both as a major reinsurer itself of large and unusual risks and as an investor in groups like Munich Re and Swiss Re.

The group does not see reinsurance remaining lucrative, and it has shifted its attention to the primary market, where it is already one of the biggest players in the US motor market and increasingly in commercial insurances.

Three principle factors continue to put reinsurance profitability under pressure. Low interest rates are hitting their investment returns. At the same time, they are attracting new sources of capital, such as pension funds, which are taking advantage of higher returns through carved out reinsurance risks such as catastrophe bonds and side cars without the overheads of running a reinsurance business. A largely benign insurance environment for natural catastrophe losses supports demand for these alternative investments and constrains pricing in the traditional market. It also helps mask underpricing.  

EIOPA’s report states: “Disciplined underwriting will be essential in order to compensate for low investment returns and a diminished ability to release prior year reserves. Against this background attaining risk-adequate prices at the January 2016 renewals is crucial for reinsurers.”

https://eiopa.europa.eu/Publications/Reports/The%20global%20reinsurance%20sector.pdf

Lee Coppack's insight:

Those who want the (re)insurance industry to make provisions for climate change needs to be aware of these market conditions. Companies have to account annually - while climate change effects are longer term and make catastrophe risks even more variable.

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West Hollywood will catalog every building to identify all at risk in major earthquake

West Hollywood will catalog every building to identify all at risk in major earthquake | catastrophe risks | Scoop.it
West Hollywood has launched a significant seismic safety project that will catalog every building in the city and identify any structures potentially at risk of collapse in a major earthquake.
City officials hired Degenkolb Engineers, a top earthquake engineering firm, to walk down every street...
Lee Coppack's insight:

An important initiative - then what happens after the buildings have been identified?

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Don't just blame climate change: Chennai floods were a manmade disaster

Don't just blame climate change: Chennai floods were a manmade disaster | catastrophe risks | Scoop.it
Poor planning can make natural disasters much, much worse.
Lee Coppack's insight:

We can do much more to improve risks more quickly than it will take to affect climate change, even if we get an agreement in Paris.

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Business interruption losses on the rise

Growth in business interruption claims highlights increasing risks for businesses worldwide, according to the new “Global Claims Review 2015: Business Interruption in Focus” report from Allianz Global Corporate & Specialty (AGCS).

In this report, AGCS analyses more than 1,800 large business interruption (BI) claims totalling more than€3 billion from 68 countries between 2010 to 2014. AGCS participated either as lead or as co-insurer in these claims and says that both the severity and frequency of BI claims are increasing, which are mostly caused by hazards such as human error or technical failure rather than natural catastrophes.

“Business interruption (BI) now typically accounts for a much higher proportion of the overall loss than was the case 10 years ago. The average large BI property insurance claim is now in excess of €2 million (€2.2 million: US $2.4 million), which is 36% higher than the corresponding average property damage claim of just over €1.6 million,” says the report.

Says Alexander Mack, chief claims officer of AGCS, “BI exposures are largest for sectors with high levels of interconnectivity and technological values, as well as concentrations of risks in single locations such as automotive, semi-conductors and power and petrochemical plants. While modern supply chains may be flexible and cost-efficient, they are also more vulnerable to disruption.”

The top 10 causes of BI loss account for over 90% of such claims by value, with fire and explosion accounting for 59% of all BI claims globally. Each fire and explosion incident analysed globally averaged €1.7m in BI costs alone.

Lee Coppack's insight:

This is a trend which has been developing for some time but the report shows that it is accelerating.

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UK insurers expected to pay out less than for previous floods

UK insurers expected to pay out less than for previous floods | catastrophe risks | Scoop.it

Insurance experts believe the floods in Cumbria will cost the industry less than other similar events during the past decade despite the scenes of devastation across the county. Analysts said the impact appeared to be less than in previous incidents." More...

Lee Coppack's insight:

It's too early for precise estimates but the floods weren't as widespread as 2007 which cost insurers £3bn.

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WMO: 2015 likely to be warmest year on record

WMO: 2015 likely to be warmest year on record | catastrophe risks | Scoop.it

The global average surface temperature in 2015 is likely to be the warmest on record and to reach the symbolic and significant milestone of 1° Celsius above the pre-industrial era. This is due to a combination of a strong El Niño and human-induced global warming, according to the World Meteorological Organization (WMO).

"The state of the global climate in 2015 will make history as for a number of reasons," said WMO Secretary-General Michel Jarraud. "Levels of greenhouse gases in the atmosphere reached new highs and in the Northern hemisphere spring 2015 the three-month global average concentration of CO2 crossed the 400 parts per million barrier for the first time. 2015 is likely to be the hottest year on record, with ocean surface temperatures at the highest level since measurements began.  It is probable that the 1°C Celsius threshold will be crossed," said Mr Jarraud. "This is all bad news for the planet."

Lee Coppack's insight:

This comment from WMO should focus minds at the COP-21 conference.

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China's quake-prone Sichuan insures buildings against earthquakes

China's quake-prone Sichuan insures buildings against earthquakes | catastrophe risks | Scoop.it

In earthquake-prone Sichuan province, the provincial government has provided 20 million yuan in initial funds for a building insurance pilot scheme in Leshan City The programme will be run jointly by three Chinese insurance companies led by the People's Insurance Company of China(PICC). Sichuan will extend the insurance across the province if the pilot programme proves successful. More...

Lee Coppack's insight:

Sichuan suffered a M7.9 quake in 2008 which killed nearly 70,000, according to official figures and cost an estimated $137.5bn in rebuilding costs. It was one of the worst and most costly earthquakes in recent history.

http://www.bbc.co.uk/news/science-environment-22398684

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Top 10 most dangerous volcanoes from EarthSky

Top 10 most dangerous volcanoes from EarthSky | catastrophe risks | Scoop.it

"Where are the world’s most dangerous volcanoes? Volcano enthusiasts working with Albert Zijlstra, Professor of Astrophysics at the University of Manchester, have compiled a list.

Published as a series of blogs on the Volcano café website, the list of the 10 most dangerous volcanoes on earth includes volcanoes which have a realistic chance of erupting in the next 100 years and which risk killing 1m or more people. At the number one spot is the Japanese island of Iwo Jima. The list includes volcanoes from all over the world, including South and Central America, Africa, Asia and Europe." More...

Lee Coppack's insight:

Even if the immediate area around these volcanos is mostly sparsely populated, a major eruption could create a deadline tsunami.

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The gobal economic cost of terrorism is at its highest since 9/11

The gobal economic cost of terrorism is  at its highest since 9/11 | catastrophe risks | Scoop.it

The world is paying the highest price for terrorism since the 2001 attacks on the United States,  according to the latest annual Global Terrorism Index by the Institute for Economics and Peace.  In 2014, acts of terror cost the world $52.9 billion...More

Lee Coppack's insight:

Despite the horrific attacks in Paris, we should not forget that the principle victims are people in Iraq, Syria, Afghanistan and Nigeria.

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Met Office officially names Abigail as first storm

Met Office officially names Abigail as first storm | catastrophe risks | Scoop.it
Storm Abigail, the first storm named as part of the Name Our Storms project, to bring severe gales to Scotland.
Lee Coppack's insight:

Name our storms is a pilot project this autumn and winter, between the Met Office and Met Eireann, the Irish Met Service. It's intended to help communication of severe weather warnings.

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Systemic risk of risk models highlights need for underwriting expertise

"A report has highlighted the potential for risk models in the insurance and reinsurance industry to cause systemic risk, signalling a need for underwriting discipline alongside advanced and robust modelling capabilities, an area the insurance-linked securities (ILS) space is now embracing. A lack of adequate catastrophe models in certain regions of the world and limitations with better-developed models in parts of the US and Europe, for example, can create systemic risks for insurers and reinsurers, underlining the need for sound underwriting practice coupled with improved analytics and greater modelling capabilities." More...

Lee Coppack's insight:

Consideration of uncertainty has always been a major factor in the use of models to manage the financial consequences of natural catastrophe risks.

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Supervolcanoes likely triggered externally, study finds

Supervolcanoes likely triggered externally, study finds | catastrophe risks | Scoop.it
Supervolcanoes, massive eruptions with potential global consequences, appear not to follow the conventional volcano mechanics of internal pressure building until the volcano blows. Instead, a new study finds, such massive magma chambers might erupt when the roof above them cracks or collapses.
Lee Coppack's insight:

Understanding the triggers for supervolcano explosions should help predict eruptions and allow at least some preparation.

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Lloyd's plans to launch the Lloyd's Index in 2016

Lloyd's plans to launch the Lloyd's Index in 2016 | catastrophe risks | Scoop.it

Lloyd’s today announced that it plans to launch its own insurance based index, the Lloyd’s Index, in the middle of 2016. The index will feature loss ratios and insurance market performance data.

Lee Coppack's insight:

Given the Lloyd's share of certain markets, this aggregate data could be very useful in alternative risk transfer and derivative structures. It's another sign of evolution in the (re)insurance market.

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We may be witnessing the worst wildfire season in recorded history

We may be witnessing the worst wildfire season in recorded history | catastrophe risks | Scoop.it
Nearly 9.8 million acres charred, a number set to grow in the final weeks in 2015
Lee Coppack's insight:

The cost of dealing with these fires, very possibly seriously exacerbated by climate change, should make investment in reducing green house gases more attractive even to sceptics.

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From the makers of catastrophe bonds, a new ‘resilience bond’

From the makers of catastrophe bonds, a new ‘resilience bond’ | catastrophe risks | Scoop.it
Some of the people who brought you “catastrophe bonds” now want to bring you “resilience bonds," a product that could appeal to flood-prone cities.
Lee Coppack's insight:

The report is available at http://www.refocuspartners.com/reports/RE.bound-Program-Report-December-2015.pdf

The hunger of capital markets for yield and diversification could finally make this type of security both viable and liquid.

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$3bn India flooding loss expected only 10% insured: Aon Benfield

$3bn India flooding loss expected only 10% insured: Aon Benfield | catastrophe risks | Scoop.it

Persistent flooding in southern India is expected to result in an economic loss to the country of around $3 billion but, demonstrating the size of the protection gap, just 10% may be paid for by insurance, according to Aon Benfield's catastrophe modelling unit Impact Forecasting. 

Adityam Krovvidi, head of Impact Forecasting Asia Pacific, commented; “New economic developments in Asia are taking place in flood plains and marsh lands with scant attention to drainage, thus increasing run-off and flooding. The 100-year rainfall event in Chennai exposed the inherent weakness of the one-dimensional nature of this economic pursuit, and highlights the need for serious introspection, implementation of mitigation measures and the redesign of urban landscapes.” More...

Lee Coppack's insight:

Climate change weather events are likely to highlight further the shortfall in insurance protection in countries exposed to extreme weather.

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UK floods bring questions on defences, climate change - JBA

The floods in the North of England, Scotland, North Wales and Northern Ireland, pose a number of questions about flood risk management and insurance that we will be investigating, according to Jane Toothill, director of flood mapping experts JBA.

"One issue is effective flood defences. Those at Carlisle and Keswick in England, were put in place following the 2009 floods. In both places, the water levels overtopped the defences. For the maps we provide insurers, we need to assess whether these floods were truly exceptional events or whether they are likely to be more common as a result of climate change or other reasons.

“Climate change is linked to stormier and more extreme weather. The problem for insurers, who write annual contracts, is in being able to know whether extreme flood events such as we have been experiencing in the UK are going to make a significant difference to the risks they are underwriting. If climate change is to blame, when did it start? It could have begun some years ago. Equally, we could still have very settled years without meaning that the underlying process of change has ceased. These are issues which require management at many levels from international organisations to local authorities to which the insurance industry and experts such as JBA will contribute.”

Lee Coppack's insight:

If weather patterns have already been affected by climate change, when did it start? If so, to what extent does the historical record, used for modelling, already include a climate change factor? If not, will scientists be able to isolate the climate change effect from natural variability in weather patterns and relate that to specific events? 

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What has the industry learnt from Chilean earthquakes?

What has the industry learnt from Chilean earthquakes? | catastrophe risks | Scoop.it

What has the insurance industry learnt from two major quakes, and 14 others that have hit Chile since 2010? Taking the latest earthquake as an example, it is clear that Chile has drastically improved how it handles earthquakes, and the insurance market plays an important role in this. More...

Lee Coppack's insight:

Seismic risk is something that Chile has to live with but there are ways of adapting.

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Great Barrier Reef protecting against landslides, tsunamis

Great Barrier Reef protecting against landslides, tsunamis | catastrophe risks | Scoop.it
The world-famous Australian reef is providing an effective barrier against landslide-induced tsunamis, new research shows.
Lee Coppack's insight:

We disturb natural defences at our peril.

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Twenty-year review shows 90% of disasters are weather-related; UNISDR

Twenty-year review shows 90% of disasters are weather-related; UNISDR | catastrophe risks | Scoop.it

A new report issued today by the UN, “The Human Cost of Weather Related Disasters”, shows that over the last twenty years, 90% of major disasters have been caused by 6,457 recorded floods, storms, heatwaves, droughts and other weather-related events. The five countries hit by the highest number of disasters are the United States (472), China (441), India (288), Philippines (274), and Indonesia, (163). 

Introducing the report, Ms. Margareta Wahlström, head of UNISDR, said: “Weather and climate are major drivers of disaster risk and this report demonstrates that the world is paying a high price in lives lost. 

Lee Coppack's insight:

As the report notes that economic losses from weather-related disasters are much higher than the recorded figure of US$1.9tr. COP21 needs to factor these losses into its discussions.

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(Re)insurance industry leaders reaffirm commitment to manage and reduce climate change risks

Just ahead of the top level COP21 meeting on climate change in Paris, 68 (re)insurance industry  leaders have reaffirmed their commitment to progress on climate resilience and adaptation. A statement from the Geneva Association today says: “The industry is more committed than ever to playing an instrumental role in implementing the objectives to manage and reduce the risks associated with our changing climate.”

The 68 industry leaders represent a growing number of signatories to the Geneva Association’s climate change statements first signed in Kyoto in 2009. Today’s press release points out that (re)insurers are engaged both in the mitigation and improvement of risks associated with extreme weather events and as major institutional investors.

https://www.genevaassociation.org/

Lee Coppack's insight:

Leading reinsurers were among the first to draw attention to climate change and its risks.

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Report finds anthropogenic climate change increased severity of many extreme events in 2014

Report finds anthropogenic climate change increased severity of many extreme events in 2014 | catastrophe risks | Scoop.it

Human activities, such as greenhouse gas emissions and land use, influenced specific extreme weather and climate events in 2014, including tropical cyclones in the central Pacific, heavy rainfall in Europe, drought in East Africa, and stifling heat waves in Australia, Asia, and South America, according to a new scientific report. Explaining Extreme Events of 2014 from a Climate Perspective” published by the Bulletin of the American Meteorological Society, addresses the natural and human causes of individual extreme events from around the world in 2014, including Antarctica. More...

Lee Coppack's insight:

Scientists are increasingly confident about links between the severity of specific events and man made climate change.

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#Earthquake protection an Issue In LA's Bid For 2024 #Olympics - CBS Local

#Earthquake protection an Issue In LA's Bid For 2024 #Olympics - CBS Local | catastrophe risks | Scoop.it

Plans for extensive renovations to the Los Angeles Memorial Coliceum leave a critical — and potentially costly — issue unresolved: How much work will be needed to harden the structure against earthquakes in time to make a credible bid for the 2024 Olympics? More...

Lee Coppack's insight:

A certainty of somewhat "costly" now rather the possibility of much more so later is so often the critical issue.

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Rapid, informed development needed to keep climate change from pushing 100m plus people into poverty by 2030

Rapid, informed development needed to keep climate change from pushing 100m plus people into poverty by 2030 | catastrophe risks | Scoop.it

A new World Bank report Shock Waves shows that climate change is an acute threat to poorer people across the world, with the power to push more than 100 million people back into poverty over the next fifteen years. https://openknowledge.worldbank.org/bitstream/handle/10986/22787/9781464806735.pdf

Lee Coppack's insight:

The World Bank warns with authority but it also proposes measures to reduce the risks.

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