Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

RMS models $1.2 billion of 2013 catastrophe bonds


Risk Management Solutions (RMS), a leading provide of catastrophe risk modelling and analysis products and services, has announced today that it has provided the risk analysis for $1.2 billion of catastrophe bond issuance in 2013 so far. This includes two recently closed transactions which both increased in size significantly and were well received by investors; the $500m Tar Heel Re Ltd. (Series 2013-1) cat bond and the $400m Bosphorus 1 Re Ltd. parametric cat bond.

For RMS this is an important milestone, having virtually disappeared from new catastrophe bond issuance after its RMS V11 risk model changed the view of risk significantly enough on U.S. hurricanes for the market to shy away from using the model until it became more comfortable with the changes. Now the market is clearly becoming more comfortable with RMS again, which is a positive thing for the market as it is never good for any market to be dominated by its service providers.

On the Tar Heel Re cat bond, which supports the North Carolina wind pools the North Carolina Joint Underwriters Assn. (NCJUA) and the North Carolina Insurance Underwriters Assn. (NCIUA) with a source of hurricane reinsurance protection, RMS noted that this deal upsized significantly to $500m at its close.

For the Tar Heel cat bond RMS conducted the risk analysis using its RiskLink® version 11.0 U.S. Hurricane Model, and said that this deal is the first to include a number of sensitivity analyses around long and medium-term rate scenarios and also storm surge leakage levels. RMS said that this gives investors a range of modeled loss estimates to help them to inform more resilient risk management decisions.

On the Bosphorus cat bond deal, which is the parametric Turkish earthquake cat bond which grew in size from $100m to $400m by close for the Turkish Catastrophe Insurance Pool, RMS noted that this is the first transaction to bring pure parametric Turkey earthquake risk to the cat bond market, and said that investor demand helped to drive the price down to a record low.

“We are excited to see such strong investor demand for both of these transactions,” commented Peter Nakada, managing director of RMS Capital Markets. “With a continuing interest and influx of investor capital into the Insurance Linked Securities market, now is a great time for cedants to lock-in attractively priced cover for the next few years. RMS is delighted to help facilitate this risk transfer, with these successful transactions.”

As we said above, it is positive for the market to see RMS becoming involved in more cat bond issues again. Sponsors and investors use all available risk models to assess risk internally and to look at cat bond portfolios, so it has been a little disjointed to see modelling of issuance so dominated in the last two years. Competition is also good as it helps to keep prices keen and the modelling firms on their toes.

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