CCRIF looking at catastrophe bonds and collateralized reinsurance

by Artemis on May 13, 2014

The Caribbean Catastrophe Risk Insurance Facility (CCRIF), the parametric insurance and catastrophe risk pooling facility for Caribbean countries, is considering catastrophe bonds and collateralized reinsurance as part of its risk transfer, according to its CEO.

During a recent roundtable interview session, moderated by Artemis’ editor Steve Evans as part of the new Clear Path Analysis ILS report, Isaac Anthony, the Chief Executive Officer of the CCRIF, expressed his desire to capitalise on the increasing participation of institutional investors in the reinsurance market.

Mr. Anthony explained that the CCRIF is reliant on the traditional reinsurance market for its risk transfer. But as the CCRIF seeks to grow and expand, with Latin America being the next target region, the facility would find it beneficial to diversify its sources of risk capital to include the capital markets.

“At CCRIF we are very reliant on the reinsurance market and are actively trying to source the best pricing. This year we are seriously looking at the possibility of getting involved with CAT bonds and potentially, collateralised reinsurance,” Mr. Anthony commented during the interview.

The fact that the capital market is increasing its participation in reinsurance and catastrophe risk is potentially a benefit to the CCRIF. Mr. Anthony said; “From our perspective this is very important as we feel this market expansion presents us with some excellent opportunities.”

Facilities such as the CCRIF could potentially really benefit from accessing the capital markets and the ILS market could benefit as well. A CCRIF cat bond would bring new geographic perils to market which are currently not included, or perhaps very lightly in terms of some Caribbean hurricane risk at this time.

The CCRIF sees the potential benefits for itself, Mr. Anthony explained; “Although we are relatively new to the market, we do see that the collateralised reinsurance and CAT bond markets are very attractive options for sponsors.”

“These instruments provide strategic benefits in that they broaden the source of capacity over time which in turn helps better manage volatility in the reinsurance market,” Mr. Anthony continued.

The CCRIF’s parametric insurance model should mean that the reinsurance protection from a catastrophe bond could be structured to use the same triggers and measurements, thus effectively removing the basis risk as both insurance and reinsurance covers could use the same trigger source.

The CCRIF would make a very interesting catastrophe bond sponsor and investors would likely be keen to support any issuance. With reinsurance pricing and cat bond pricing at recent lows this year could be a very good time for the facility to begin discussions on how to leverage ILS or catastrophe bonds as part of its reinsurance.

The comments from the CEO of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) were made during a roundtable for the recently published Clear Path Analysis report.

Insurance-Linked Securities for Institutional Investors 2014The report from Clear Path Analysis is available to download today.

Visit the Clear Path Analysis website to register to download a full copy of the report ‘Insurance-Linked Securities for Institutional Investors 2014‘ including all of the interviews and roundtables.

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