Monte Carlo 2012: New historical record in cat bonds in 2012

10 September 2012 —
montecarloDay two of the 56th edition of the RVS in MONTE CARLO has kicked off with the MUNICH Re conference on ILS investments at the "4th ILS Round Table" where Dr. Andreas MULLER of MUNICH Re moderated the speech among key knot speakers Frank MAJORS of NEPHILA CAPITAL, Bryan ERHART of AON BENFIELD, Peter RODER of Munich RE, Steve EMERSON, Peter RODER, and Ming LEE.

In 2012 the market has seen a great uplift in cat bonds, a thing that hasn't occurred since 2007, when the record was set to US$ 6.8 billion. This record is going to be broken, since by the end of June 2012 cat bonds totalled some US$ 14.3 billion according to Dr. Andreas MULLER.

The strong momentum in the market is due to the shift in capital provisions and in the fact that the market is has changed since 2008, when it has undertaken a slow down, but in a healthy way.

Frank MAJORS stated that the market's potential is great and the reason is that in pick and non pick risk areas, e.g. Florida, new risks appeared while 45% of the capital risk is not yet in the market. Insurance should penetrate the hot spots such as in the state of California, where there is a perspective for profit in asset classes between US$ 3-5 billion. In order to achieve these dynamics on cat risks there has to be created a business model able to educate investors.

ST Emmerson added that even though ILS is a secondary market in perspective, liquidity has its momentum because investors understand the value of ILS and in result classes have increased. Further more, speakers wanted to demonstrate the necessity of ILS programs in the industry and how they will bring more capital in the market taking as an example the Japan quake where more than US$ 300 million has been paid in claims in less than 3 weeks.

While a study conducted by MUNICH Re on exposure in the American Market and especially the North American regions where the market is evolving, Nat Cat risk structure is on the change thus giving the advantage to operate also in the non pick regions increasing in this way ILS activity and capital flow in the market.

Question: has the market been tested? According to Ming LEE the market has been tested but not yet challenged and this means that specialists can only speculate on the reactions of the investors on losses because for the reinsurers this is still a core business, but for investors Nat Cat investments are not seen yet as such.

On the matter MUNICH Re states that paid losses on prior years raise the question on whether possible capital raises should occur, in order for the market to be able to support capital flow in their portfolios. It may be a small market but still investors should be on the wondering side.

At the 2012 edition of the traditional meeting, Media XPRIMM is represented by a team consisting of Adriana PANCIU, CEO, Alexandru CIUNCAN, Managing Partner, Oleg DORONCEANU, International Markets Coordinator, and Dimitrios TSOULIAS, International Markets Counselor. Also, XPRIMM Publications will cover the event's debates, along with well-known industry names such as Reaction, Business Insurance, Global Reinsurance, L'Argus de l'Assurances, Insurance Journal etc.

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