London, UK based insurance-linked securities and catastrophe bond investment manager Leadenhall Capital Partners has added a new hire to their team, taking them to eight people, and announced that they are targeting to further grow their assets under management. Earlier this month Leadenhall announced that their assets under management had passed $650m but todays announcement shows they aim to continue that growth.

Simon Mason has joined Leadenhall from a role at Friends Life which saw him working as an actuarial technician for two years. He joins Leadenhall as an analyst and he will support the risk management and portfolio management functions. Simon is a graduate of the University of Bath and also a student member of the Actuarial Profession. His experience includes a stint at Barclays Global Investors, working in derivative operations, and time with broker Willis, in their terrorism broking team.

Leadenhall will seek to continue the strong growth they’ve been experiencing of late. CEO of Leadenhall, Luca Albertini, commenting on the hire said “We are now 8 people and this latest hire positions us for continued growth in assets in the months ahead”.

Leadenhall Capital adds new hire, targets growth in assets is a post from: www.Artemis.bm
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Back in January we wrote that U.S. crop insurance losses had hit record levels of $9 billion for the year 2011, with much of those losses attributed to freezing weather across the Southern U.S. states, droughts in the Plains, flooding along the Mississippi river, severe rainstorms and hail from severe thunderstorms. That beat the previous record from 2008 which was $8.67 billion, but as we said at the time the total was expected to rise further.

As predicted, the total amount of crop losses that U.S. farmers faced in 2011 has now risen to $10.7 billion and it’s expected that the figure will break through the $11 billion mark when all claims are registered and assessed. That’s a 25% increase on the previous record losses experienced in 2008.

The Crop Insurance America website breaks down the losses a little and says that corn, cotton, wheat, soybeans grain sorghum, pastureland and rangeland, and tobacco were the top crops damaged by dollar loss amount. They also say that the average loss ratio is .90, meaning that for every dollar of cover purchased 90 cents was paid out on average across the U.S. However some states saw much higher loss ratios, topped off by Vermont which saw a loss ratio of 2.59. That means crop insurers focused on Vermont will have experience large deficits and even reinsurance would likely not be enough to cover those loss levels.

With weather related crop losses reaching such high levels it is bound to bring weather risk management solutions and weather-index insurance into the spotlight again. Instruments like weather derivatives, parametric insurance and index-based insurance can all be used to create crop insurance solutions and products using those techniques can settle much more quickly than traditional crop insurance which requires assessments of damage to be undertaken.

The high losses of 2011 are an opportunity for innovative insurers to step forwards offering alternative crop insurance mechanisms. In turn those insurers need reinsurance and it’s easy to see how the traditional and alternative reinsurance markets could help them out. Even catastrophe bonds could have a role to play in crop insurance at some point in the not too distant future.

2011 U.S. crop insurance losses approach $11 billion is a post from: www.Artemis.bm
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The winter of 2011/2012 will be remembered not for extreme freezes, snowfall levels (although they were high in many areas) or winter windstorms (although the European season was marginally active, rather it will be remembered for being warmer than average. March 2012 was the warmest since records began in the U.S. and just the other day we wrote about reinsurer Renaissance Re’s energy and weather risk divisions losses due to warm weather. So it’s no surprise to hear that the winter weather has raised interest in weather derivatives.

This article on Risk.net says that experts on a panel discussion at the recent Energy Risk USA conference said that the weather derivatives market has received a boost from the unusually warm weather in the U.S. The warm weather caused natural gas prices to hit their lowest levels in a decade and as a result gas producers have shown growing interest in weather derivative solutions which would allow them to hedge price fluctuation.

Tom Paylor, of RenRe Energy Advisors, is quoted in the article as saying that power and gas producers are both showing interest in weather derivatives for next winter and enquiries are coming in earlier than usual.

Much of Europe has also experienced warmer than average temperatures this winter, particularly the UK, so we suspect interest will also have risen there as well. It will be interesting to see if this heightened interest really does translate into increased weather derivative transaction volumes.

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At least once every year the Florida Hurricane Catastrophe Fund hits the headlines as people discuss the lack of financing the fund has to cope with an extremely severe Atlantic hurricane season. In 2012 this hasn’t changed, its’ still thought that the cat fund could only cope with two reasonably sized landfalling hurricanes and if one was to strike Miami head-on and at full strength then it’s probable that a single storm would be enough to wipe out all of the cat funds finances.

The Funds advisory council have issued a statement on the cat funds claims paying ability. It’s expected that the fund will have the ability to pay up to $15.5 billion of claims, this includes reserves of $8.5 billion and an ability to borrow as much as $7 billion after an event (post-event borrowing would be paid back by surcharges on every policyholder). Now, when you consider that a single hurricane, Wilma ins 2005, cost around $9.4 billion, it’s easy to see how an active hurricane season could quickly put the cat fund into the red.

It’s thought that the cat fund has a total liability of around $17.3 billion which would leave them with a shortfall around $1.8 billion if the worst should happen.

Could the catastrophe bond market provide some of that capacity if the Florida Hurricane Catastrophe Fund copied their local insurer Citizens and reached out to the capital markets for a source of reinsurance coverage? Citizens have just managed to secure $750m of cat bond coverage for Florida hurricanes just for their coastal account. The cat funds exposure spreads across the whole of Florida and includes auto as well as homeowners insurance so you would think they could at least lessen the potential shortfall by issuing a cat bond.

The question would be whether cat bond and insurance-linked security investors would have the appetite for another large chunk of Florida hurricane risk. Given the state of the cat bond market right now, and the amount of investor interest that is being seen, it’s likely that they could secure at least some of the shortfall in cat bond capacity if the coupon offered was attractive enough and the deal structured with the right return-period. However it would increase the U.S. hurricane weighting of the wider cat bond market.

Of course it is very unlikely that the cat fund would turn to the cat bond market when they can borrow from the government or force consumers to pay surcharges, but perhaps a cat bond and capital market investor funding would be a better solution for the funds longevity? Or would an alternative be for the cat fund to look to reinsurers like SCOR and create a contingent capital solution of some description?

Florida Hurricane Catastrophe Fund still facing shortfall is a post from: www.Artemis.bm
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French reinsurer SCOR have announced that they have extended the cover available to them through their natural catastrophe contingent capital facility which they launched back in 2010. They have elected to extend the innovative contingent capital solution, which acts as an event-driven guaranteed equity line, by an additional €75m taking the amount of cover SCOR’s existing contingent capital facility provides back up to €150m.

When SCOR launched this facility in September 2010, it was a €150m contingent capital facility structured in two €75m tranches. SCOR drew down on one of the tranches after the facility was triggered by their catastrophe loss experience in Q1 2011. So this announcement today see’s the facility bounce back to its original size of €150m. Also last year, SCOR recalibrated the trigger point for the contingent capital facility, to have a more remote trigger probability.

The facility takes the form of a contingent capital equity line with bank UBS. It allows SCOR to issue new shares when the facility is triggered. A trigger event is defined as when SCOR has experienced total annual aggregated losses from natural catastrophes above a predetermined threshold in a given calendar year from 1st January 2012 to 31st December 2013.

SCOR considers the nat cat contingent capital facility a reinsurance layer of last resort; meaning that it would be triggered after SCOR’s retrocession and insurance-linked securities (ILS) solutions. It allows SCOR to further diversify their sources of reinsurance protection and they say it offers them a very cost-effective alternative to retro and ILS.

Contingent capital facilities are expected to become more widely used as their popularity grows and they become more cost comparable to other sources of cover. As SCOR says, they add a valuable extra prong of diversification to a retrocessional reinsurance and ILS/catastrophe bond strategy which we’re likely to see other large reinsurers experiment with in the future.

Further details on the structure and terms of the facility from SCOR’s press release can be found below. It clearly shows the wide-ranging natural catastrophe cover that this facility provides:

Characteristics of the second contingent equity line

The transaction takes the form of an additional issuance of warrants to UBS pursuant to the 26th resolution of the extraordinary general meeting of the shareholders of SCOR dated May 4, 2011 and approved by a resolution of its Board of Directors dated November 9, 2011.

Under this new arrangement, SCOR has undertaken to drawdown on the facility upon the occurrence of a trigger event and UBS has undertaken to exercise the number of warrants necessary for the subscription of new SCOR shares in a total amount of EUR 75 million (including issuance premium).

The drawdown on the extended facility will only be available when the level of estimated ultimate net losses [2] incurred by the SCOR group as an insurer or reinsurer, as confirmed by its statutory auditors, reaches a pre-defined threshold in a given calendar year from January 1, 2012 to December 31, 2013 (the “Risk Coverage Period”) as the direct result of the occurrence within that year of one or more natural catastrophe-type events. Such threshold may be recalibrated each year by SCOR within certain limits defined to adjust the coverage levels to changes in the insurance and reinsurance market conditions to ensure the consistency of the facility’s risk profile over the period.

Under the extended facility, the eligible worldwide natural catastrophe events under the transaction include the following:

• earthquake, seaquake, earthquake shock, seismic and/or volcanic disturbance/eruption,
• hurricane, rainstorm, storm, tempest, tornado, cyclone, typhoon,
• tidal wave, tsunami, flood,
• hail, winter weather/freeze, ice storm, weight of snow, avalanche,
• meteor/asteroid impact,
• landslip, landslide, mudslide, bush fire, forest fire and lightning.

As a result of the extension of the existing EUR 75 million facility, the aggregate amount available under the combined facility upon the occurrence of natural catastrophe related trigger event will be EUR 150 million.

In addition, if the daily volume weighted average price of the SCOR shares on Euronext Paris falls below EUR 10 (i.e. a price level close to the par value of the SCOR share), the issuance of new shares in an amount of EUR 75 million [3] (including issuance premium) will be automatically triggered in order to minimize the risk of this financial cover being unavailable (the warrants being unexercisable below par value) should a natural catastrophe related trigger event occur during the remainder of the Risk Coverage Period. Such share price trigger is actionable once in the life of the transaction.

Subject to certain extension and/or suspension periods for regulatory or other reasons, the warrants will remain exercisable until the expiration of a three months period after the end of the Risk Coverage Period.

The subscription price to be paid by UBS has been set at 90% of the volume weighted average price of the SCOR shares on Euronext Paris over the three trading days preceding the exercise of the warrants.

The transaction is secured by a firm underwriting commitment from UBS (which does nevertheless not intend to become a long term shareholder of SCOR and may resell the shares by way of private placement and/or sales on the open market).

From the notification of the occurrence of a triggering event by SCOR to UBS until the exercise of the warrants, UBS will be prohibited from engaging in hedging transactions on the SCOR shares, other than ordinary course transactions undertaken independently by UBS’s affiliated banking and brokerage businesses.

Under current market conditions, the subscription price would amount to EUR 16.678 (based on a 10% discount on the 3 day volume weighted average price of EUR 18.531 [4] per share) and drawdown under this additional facility would result in the issuance of 4,496,896 new SCOR shares, amounting to 2.3% of SCOR’s share capital. [5]

In case of issuance of new shares, SCOR will make the appropriate disclosures to the market, in compliance with applicable market regulations at such time, on the circumstances of such issuance, the issuance price, the number of shares issued and the consequences of such issuance for its shareholders.

The execution of this additional facility will have no material impact on SCOR 2012 accounts.

Limited potential dilutive impact of the transaction for SCOR Shareholders

This additional financial coverage is an event-driven contingent capital equity line, which may be triggered upon the occurrence of the above-described triggering events only. Its potential dilutive impact therefore depends on the probability of occurrence of such triggering events.

SCOR management believes that there is a significant net economic benefit of such contingent capital solution for its shareholders, as it favourably compares with traditional retrocession or ILS and optimises SCOR’s risk protection costs with limited potential dilutive impact. SCOR estimates the annual probability of a trigger event to be 1.4%.

The following chart summarizes the potential dilutive impact of this additional facility for a shareholder holding 1% of SCOR’s share capital prior to the share issuance (calculated on the basis of the number of shares that make up the share capital as of March 31, 2012).

(1) Based on the dilution of share capital as of March 31, 2012 in accordance with International Financial Reporting Standards (IFRS).

[2] The estimated ultimate net loss is the aggregate of the individual estimated ultimate net losses of all natural catastrophe events in a given calendar year. The individual estimated ultimate net loss is the estimated pre-tax impact of any qualifying natural catastrophe event, net of all recoveries (reinsurance and derivatives) and additional expenses as recorded in the SCOR Group books.

[3] To be deducted from the aggregate amount of the combined facilities

[4] From May 14 to May 16, 2012

[5] On the basis of SCOR’s current share capital made up of 192.190.348 shares as at March 31, 2012, which includes Treasury shares.

SCOR extends natural catastrophe contingent capital facility is a post from: www.Artemis.bm
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Not only was April a record-breaking month in terms of the amount of risk capital issued in catastrophe bond transaction, as we wrote the other day, it also saw the amount of cat bond and ILS risk capital outstanding rise to $14.7 billion according to Swiss insurance-linked securities investment manager Plenum Investments. When Artemis last reported on the amount of risk capital outstanding in the market we had the number at $14.2 billion at the end of March thanks to data from Aon Benfield.

As well as strong issuance in April of $1.245 billion there were also maturities to take into account, including two series of Blue Fin Ltd. cat bond notes from Allianz which between them totalled around $470m. We expect the overall amount of risk capital outstanding to grow further by the end of this quarter.

Plenum Investments says that the market has grown by $1.6 billion between 31st March 2011 and 31st March 2012. They explain that the cat bond market is growing and will continue to grow because:

1. The market is catching up with last year’s low issuance volume,
2. Certain reinsurance markets offer better affordability for transferring risks in the form of CAT bonds,
3. New sponsors are willing to use fully collateralized risk transfer solutions,
4. New diversifying risks are being brought to the CAT bond market.

Plenum projects that the amount of risk capital outstanding in the cat bond and ILS market could reach as much as $16 billion (according to their measures) at the end of 2012. We agree with them and believe this is perfectly feasible if the market achieves around $6 billion of issuance in 2012 as many expect it will.

Looking ahead to 2013 and beyond Plenum Investments believe that the Solvency II regulatory environment, which is due to come into effect in January 2014, will lead to an increase in cat bond issuances as insurers seek out increased coverage to help offset
Solvency II’s risk based capital requirements. Plenum see this as a positive development for the cat bond market which will help to increase liquidity and diversification making it more efficient to manage cat bond and ILS portfolios.

It’s worth noting that most reports on the size of the cat bond market will differ as each company includes different types of deals and risks. For example Willis’ recent report was for cat bonds only and so quoted a lower figure for risk capital outstanding, where as Plenum and Aon Benfield also include mortality, longevity and health insurance ILS deals.

Catastrophe bond risk capital outstanding could grow to $16 billion by end of 2012 is a post from: www.Artemis.bm
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Wells Fargo & Company, the massive financial services group headquartered in the U.S., have announced that they are bringing their successful range of insurance trust products to the UK and EU. To date these insurance trust products have only been available in the U.S. where they are used in place of letters of credit and as a way to provide collateral for various types of insurance and reinsurance transactions, including for insurance-linked securities and catastrophe bonds.

“We are excited to be able to offer UK-based corporate insurers a lower-cost, more efficient alternative to addressing their collateral needs,” said Brian Bartlett, head of Corporate Trust Services. “Insurance trusts provide a number of advantages over LOCs. Customers will enjoy a high level of service when accessing this innovative product.

Wells Fargo say that their UK Insurance Trust product can provide significant cost savings compared to letters of credit, increase availability of credit for those using it and remove the need for an annual renewal process which is required with any letter of credit. Instead of posting a letter of credit, Wells Fargo clients can now place cash into a trust account in the amount of their collateral requirement. It’s efficient as Wells Fargo have already drafted the trust agreement format alongside regulatory bodies and most major re/insurance carriers, meaning a lot of the work required to establish a trust is already complete.

Use of these trust services could make insurance-linked security and cat bond issuance more efficient and cost-effective and it will be interesting to see whether potential issuers look at these as a way to collateralise ILS and cat bond deals. They are also applicable to reinsurance transactions which need to collateralised, captives, surety arrangements and deductible programs.

Wells Fargo bring insurance trust products to the UK and EU is a post from: www.Artemis.bm
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PERILS AG, the independent Zurich-based company providing industry-wide European catastrophe insurance data and loss indices,has published their latest newsletter today updating the market on the events of 2011 and the progress that PERILS have made. The last time we reported on PERILS progress they had just reached $3.18 billion of risk transfer capacity placed using their loss data and index. Now, after a number of further catastrophe bonds have come to market using PERILS they reached $4.039 billion of capacity placed at the 31st March 2012.

In the first quarter of 2012 PERILS data and indices was used to place $963m of capacity, with $542m of that being industry-loss warranties (ILWs) and derivatives and the other $421m being catastrophe bond capacity. PERILS says that at the 31st March there was $3.235 billion of capacity at risk which used PERILS data and indices, $1.709 billion was cat bonds and $1.526 was ILW and derivative capacity. The total risk capital placed using PERILS since the service launched in January 2010 reached $4.039 billion, $2.33 billion of which was ILW and derivative based with the other $1.709 billion being cat bond capacity. The graph below shows this split more clearly.

PERILS based capacity placed in ILW and catastrophe bond transactions

More than half of the total capacity placed with PERILS data and indices uses their data resolution to design bespoke trigger indices. This means that a country, CRESTA-zone and/or property line of business weighting is defined. In the case of an event occurring, weighting factors are applied to the PERILS loss data to determine the trigger value and whether the event causes any loss for the instrument. By using this approach it allows the transaction to be better aligned with the actual loss experienced by the protection buying entity.

PERILS is making good progress and has certainly become the leading industry loss data and index source for European windstorms. Last year PERILS announced that they would be including UK flood loss data in their service, this data was included in their database when they released their 2012 update back in April, it remains to be seen how that data will be used by protection buyers but we hope to see at the least ILW type instruments come to market to cover UK flood risks and this development certainly makes a UK flood cat bond much more feasible.

Other insights on PERILS progress include:

• Number of data entries in PERILS Industry Exposure Database 2012 – 32,136
• Number of countries covered by PERILS – 11
• Number of perils covered: Europe Wind, UK Flood – 2
• Market loss threshold for capturing Europe Wind and UK Flood events – EUR200m
• Number of captured events – 9
• Minimum number of PERILS loss reports for qualifying events – 4
• Number of data providing national insurance companies – >80
• Total of PERILS-based capacity at risk per 31 Mar 2012 – $3.2 billion
• Total of PERILS-based capacity placed 1 Jan 2010 to 31 Mar 2012 – $4 billion
• Share of PERILS-based capacity which uses structured triggers – 57%
• Number of PERILS-based insurance risk transactions 1 Jan 2010 to 31 Mar 2012 -  61

You can download the full newsletter which also includes a look at the last European windstorm season here.

PERILS AG industry loss data used for over $4 billion of risk transfer capacity is a post from: www.Artemis.bm
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After a record first quarter for the catastrophe bond market, which featured a diverse mix of old and new perils, new structures and new capital providers the capital market continues to demonstrate significant and growing appetite for catastrophe risk, says intermediary Guy Carpenter‘s GC Securities division in their end of Q1 2012 cat bond market report. The report says that the successes seen in Q1′s cat bond issuance illustrates the continued growth and maturation of the catastrophe risk asset class.

Guy Carpenters report, Catastrophe Bond Update: First Quarter 2012, takes a look at the health of the cat bond market after a busy Q1. The first quarter was the most active on record and saw sponsors trying to lock in capital markets capacity for a diverse range of perils and structures at a time when the traditional reinsurance market environment was a little uncertain. Providers of capital were up to the task, says Guy Carpenter, although pricing was slightly above levels seen in late 2011.

Q1 of 2012 saw significantly more diverse issuance than a year before, with a good mix of perils including standalone California and Japan earthquake cat bonds and diversity in structures through occurrence versus aggregate triggers and risk/return profile variance. This helps to keep the capital flowing into the space as sponsors purposefully bring deals they know will be well received by investors. The structurers, advisers and arrangers of cat bond deals deserve some praise for this as we know they advise sponsors on the best structures to use to ensure the cat bond is well received by the market depending on current conditions and recent deal flow. As a result of the strong issuance in Q1 the overall cat bond market (measured in risk capital outstanding) grew by 5.2% according to Guy Carpenters numbers.

Despite the challenging conditions in 2011 the capital market continues to demonstrate a significant and growing appetite for catastrophe risk. Existing catastrophe risk investors continue to report new inflows of capital and new investors are entering the ILS and cat bond space both directly and through investment managers funds. Guy Carpenter also say that some non-core investors who have been less active in the catastrophe bond market in recent years have begun to increase participation. This is excellent news and shows that currently cat bonds are an extremely attractive investment proposition due to their compelling returns and non-correlation to wider capital markets.

Guy Carpenters report takes a look at the cat bond deals that came to market in Q1 and also at the maturities that rolled off risk during the quarter. We won’t go into detail on those as you can find details of every cat bond in our Deal Directory.

On risk capital outstanding the report points out that the cat bond market has a good chance of continued growth throughout 2012 as maturities due to roll off risk only total $2.51 billion for the rest of the year. Q2 is due to see $1.44 billion of maturing cat bonds and we’ve already seen more issuance than that so we can certainly expect overall growth at the end of the current quarter. Relative pricing and capacity in the traditional reinsurance market and catastrophe activity are the factors which could affect or stimulate further the cat bond markets growth through the rest of 2012.

Q1 issuance showed the continued maturation of the cat bond market, as structural changes were made to increase transparency of transactions and fairness in the event of judgments. Guy Carpenter said that changes were made to “ensure that in a post-event loss scenario all stakeholders in the transaction are provided an ability to efficiently express their views in the instances in which judgment is required”. It’s assumed that these changes are due to disagreements over the Mariah Re triggering last year. Other efforts to improve transaction transparency included the inclusion of company loss files as supplements to transaction offering documentation.

Finally Guy Carpenter look ahead to the rest of 2012 and say that there is an opportunity for the market to achieve record levels of primary cat bond issuance in 2012. That would imply a total issuance of over $7 billion. Converting this potential record volume into reality is dependent on factors such as catastrophe activity, traditional reinsurance market conditions, market interest from protection buyers and sellers and also how market conditions translate into the price versus value perception of cat bonds. GC Securities, Guy Carpenters capital markets arm, have a baseline view of a volume of $5.5 billion but with significant potential for more issuance if market conditions are right. It’s good to hear bullish comments like that from high-profile market participants.

You can access the full report via the GCCapitalIdeas blog.

Capital market shows significant and growing appetite for catastrophe risk: Guy Carpenter is a post from: www.Artemis.bm
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The huge Everglades Re Ltd. catastrophe bond which completed in April at a record $750m for a single cat bond helped the month become the strongest single month for volume of catastrophe bonds issued since the market began, according to the latest report from Swiss insurance-linked securities investment manager Plenum Investments. Four cat bonds completed during the month of April, bringing an additional $1.245 billion to insurance-linked securities investors. So April broke records for both deal size with Everglades Re and total issuance.

April saw a diverse mix of perils coming to market through the four deals with U.S. hurricane, U.S. earthquake, Japan typhoon, Mexico hurricane, Caribbean hurricane and Canadian earthquake all making up a part of the cat bons which completed. Even within the U.S. hurricane risk there was diversification opportunities as one cat bond targeted Louisiana hurricane risks and another pure Florida wind.

Another record for the cat bond market was the fact that two new U.S. state sponsored insurers chose to bring cat bonds to market for the first time, as Louisiana Citizens and Florida Citizens both made their first forays into the cat bond space. This is encouraging and a trend we suspect may continue as other state sponsored insurance entities continue to assess cat bonds as a viable alternative to traditional reinsurance.

Finally on the new issuance during April, Plenum Investments highlight the huge range of returns offered by the various tranches which came to market. Premiums offered by these cat bonds range from a low 3.75% to a massive 17.75% annually. Something for everyone in the investor space.

Here are the four cat bond deals which completed during April:

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The strong pipeline and considerable amount of risk capital coming to market with higher premiums in April meant that secondary market cat bond prices again decreased during the month. Demand was still low for secondary cat bonds as investors sought to access the new deals and set capital aside for them. This lead to price declines across most perils except for Japan earthquake and European windstorm which saw some increases according to Plenum. Prices on U.S. hurricane bonds decreased on average by 1%, on U.S. earthquake bonds and Japan typhoon bonds, prices had a modest decrease of 0.1% while Japan earthquake and Europe windstorm bonds modestly gained on average 0.1%.

As a result of the decline in secondary cat bond marks Plenum Investments fund saw flat performance in April. They expect modest spread widening to continue for May and some of June while the primary market is still strong. After that they expect some U.S. hurricane exposed cat bond spreads to tighten and combined with growing interest in the secondary market and a levelling off of supply and demand, Plenum Investments expect to see stronger growth in their fund in the coming months.

April a record-breaking month for catastrophe bond risk capital issued is a post from: www.Artemis.bm
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