I spent half a day last week meeting with executives from various divisions of Verisk Analytics, parent company of such well-known industry brands as ISO and AIR Worldwide (Verisk has so many P&C-focused business units under its umbrella that I would have needed half a month to meet with leaders from every division).
The get-together netted a number of story ideas that you'll see in future issues of NU, but I thought I'd share here the views of Alex Korb, who works as a business-development officer, identifying opportunities for participants in insurance-linked securities to use Verisk data and services.
In Korb's admittedly biased but amply supported view, the appetite for cat bonds is "on a definite upswing."
On the capital-markets side, asset managers "are waking up" to this investment option, Korb says, drawn by the fact that these bonds "are uncorrelated to anything else in their portfolio." It also doesn't hurt that "they pay very well" with spreads that compare favorably to similar deals. "Cat bonds as an investment option are still relatively young and so still have a novelty premium associated with them," he says.
And the increasing interest on the insurance side of the equation is not only among the usual suspects—insurers and reinsurers—but also among public entities.
Florida Citizens Property Insurance Corp. is reportedly shopping for a $250 million cat bond—which would be its first. And in the wake of the recent devastating floods—and a likely pullback in reinsurance capacity—the Thai government is expected to look to tap the capital markets in a multibillion-dollar way.
Korb suggested that reforms to the National Flood Insurance Program could also include allowing access to capital markets.
Another trend to keep an eye on: capital markets "wading into other insurance domains" beyond property risks, Korb says, such as health care and casualty.
Then there's this twist: While not unheard of, it has been exceedingly rare for private companies to go straight to the capital markets themselves—with Korb pointing out that Universal Studios did so following the Northridge quake in 1994 (and a subsequent nasty dispute with its insurer).
"I would not be surprised to see more companies exploring this option in the future," Korb says, pointing to a confluence of factors that could make this approach at least slightly more common: corporate risk departments are growing much more sophisticated; the traditional insurance market is at least showing signs of hardening, which means for buyers higher prices and/or harder-to-place risks; and more and more capital sources are growing more and more comfortable with the idea of (and available data behind) these bonds and are eager to play in this space.
If there are any risk managers out there pondering such an approach, give us a call. We'd love to hear more—on or off the record.
Byrant Rousseau
Editor in Chief
brousseau@sbmedia.com
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.