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Multiple positives from QBE’s first cat bond VenTerra: Jim Fiore


Education, timing and the ability to adequately cover separate perils across the globe were key reasons QBE Insurance Group (QBE) issued its first catastrophe bond at the end of 2013, and the firm’s Chief Reinsurance Officer, Jim Fiore, feels the experience was a good one.

In late December 2013 QBE launched VenTerra Re Ltd. 2013-1, a $250 million catastrophe bond covering Australian cyclone and earthquake risks, as well as the group’s U.S. earthquake exposures.

Fiore, in a recent interview with Paul Schultz, Chief Executive Officer (CEO) of Aon Securities, the ILS focused unit of the insurance and reinsurance broker, explained that QBE’s reasoning behind sponsoring a cat bond was to protect against significant exposures in separate continents.

“We wanted to somehow look at protecting all three perils,” said Fiore.

Interestingly, the VenTerra transaction was the first catastrophe bond covering Australian risks that utilised an indemnity trigger, revealing how the asset class’ varied structures are increasingly being used in a growing range of locations, against an increased range of perils.

Initially, says Fiore, the paperwork and tasks related to issuing the cat bond was significant, more so than the firm had experienced on a traditional basis. However, “once it was put in place it worked just as we expected,” explained Fiore.

QBE also included a mechanism in the structure of the deal that enabled it to adjust the cat bond year-on-year based on exposures, something the company took advantage of and subsequently changed where the attachment point would sit each year, says Fiore.

A key element of QBE’s and the rest of the industry’s reinsurance business lie with building strong relationships, something the insurance-linked securities (ILS) market has lacked in recent times, as investors are viewed as more of just a provider of capacity.

However, the evolution of the alternative reinsurance market has seen its volume grow to near $70 billion, with catastrophe bond issuance being the main avenue of choice for sponsors and investors, not to mention the greater use of collateralized reinsurance ventures and reinsurance sidecars witnessed in the last few years.

With the market’s maturity ILS investors have started to build stronger relationships with traditional players notes Aon Benfield’s Paul Schultz, signalling a move away from the once transactional based market environment, to one more similar to that of the traditional reinsurance sector, where relationships are fundamental to successful transactions.

“Cat bonds are now more efficient, easier to do, with more expertise in the market,” explains Schultz.

And, as the deals became easier and cheaper to establish the use of the asset class increased, and investor interest in the workings and benefits of cat bonds spiked, driving the progress ILS and traditional re/insurer relationships have endured in recent times, something that will surely only increase further as innovation and capital continues to expand in the sector.

Fiore shared this view, adding that for QBE reinsurance has always been about relationships, “and a cat bond shouldn’t be any different.”

Working with regulators was also important to the launch of the VenTerra deal explains Fiore, in particular educating them about the workings and benefits of this kind of alternative risk transfer.

Likewise timing, as cat bond pricing at the time was much more in line with traditional reinsurance pricing, “so it was the right time for QBE,” said Fiore.

Since QBE launched its first cat bond the market has seen rapid growth and maturity, so it will be interesting to see if the firm renews the deal once it matures in 2017.

View the video of the interview below:

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