Boom Market
In 2010, more than $5 billion in insurance-linked securities were written, and, according to Willis Re, the amount could rise to $6 billion in 2011. among the perils covered in 2010 were European wind- storms, Japanese typhoons, longevity exposures, health insurance, and U.S. thunderstorms. new funds are springing up worldwide to trade insurance-linked securities, including: ■ ■ atropos, which was started with $100 million in seed capital from the french reinsurer Scor;
■ ■ Catco Investment Management, domiciled in
Bermuda, which raised $80 million in an initial
public offering on the london stock exchange;
■ ■ Horton Point, a dedicated fund marketed by the
U.S. hedge fund manager of the same name;
■ ■ Sequaero advisors, a Swiss-based insurance-
linked security investment manager established
by a former CEo of Converium;
■ ■ The falcon Insurance linked Strategy fund,
which was launched by the Swiss falcon Private
Bank;
■ ■ Kane, licensed in Qatar, which is looking to issue
insurance-linked securities in the Middle East.
Bogotá, São Paulo, and Santiago. Aon Benfield has put together
a comprehensive typhoon risk model of Asia, while Equecat’s
2010 Asian typhoon model received the innovation of the year
award from the Asia Insurance Review. In other recent action:
■ ■ AIR, the Boston-based catastrophe modeling firm, has updated its European wind risk model to include the results of
engineering studies and building code data.
■ ■ Guy Carpenter, along with JBA Consulting and Intermap Technologies, has launched a probability flood model of France.
■ ■ Aon Benfield has identified Japan, Chile, Indonesia, the Caribbean, and Cascadia in the Pacific Northwest as regions
where mega-earthquakes most likely will occur.
■ ■ GfK GeoMarketing has designed a more precise map of the
Philippines—an area that is especially susceptible to weather
risk—that can be used inside existing catastrophe models.
“Karen Clark & Company Issues Third
Annual Report Examining Performance
of Near Term Hurricane Models,”
Business Wire, Jan. 18, 2011. http://bit.
ly/hA3NIT
“Keeping Up With Changing
CAT Modeling Technology,”
Insurancenewsnet.com, Nov. 1, 2010.
http://bit.ly/hum4c9
Lane, Morton, “Issues in Issuing
Insurance-Linked Securities,” QFinance,
http://bit.ly/hsxfeN
“‘M8’ Earthquake Simulation Breaks
Computational Records, Promises Better
Quake Models,” Science Daily.com,
Nov. 23, 2010.
http://bit.ly/dhN1 WZ
Maynard, Trevor, “Dice Seriously
Underestimating Risk,” Lloyd’s blog,
Jan. 21, 2011.
http://bit.ly/eCPTlE
Mortimer, Sarah, “New investors help to
spur growth in cat bond sector,” Reuters,
Jan. 24, 2011. http://reut.rs/h0q W0t
“New maps of the Philippines support
insurers assessment of Cat risk,”
■ ■ The University of Nevada, Reno is creating a U.S. earthquake
simulation facility that by 2013 should allow for bigger scale
models of buildings and bridges.
■ ■ The Institute for Business & Home Safety is building a facility
in South Carolina in which actual hailstorms, wildfires, wind-driven rain, hurricanes, and other windstorms can be created.
■ ■ The M8 earthquake simulation unveiled at the Supercom-puting 2010 conference promises better earthquake models
through improved computation.
On the theory that more information is a good thing, it’s
hard to argue against this profusion of models. But some have.
Karen Clark & Co., a consulting company formed by Karen
Clark, the founder of AIR, has criticized the catastrophe risk
modeling industry for what it calls the “hurricane frequency
paradox.” Modeling firms may be seeing increased catastrophic activity because they are better able to detect and measure
activity—not necessarily because the level of activity has increased. The paradox is most visible in models that show
landfall activity as decreasing, despite increasing observed
hurricane frequencies.
Karen Clark & Co. argues that modeling firms have overestimated the Atlantic hurricane risk in the United States over the
past five years—in which insured losses were significantly lower
than projected. In a blog posted on the Lloyd’s website, Trevor
Maynard, manager of emerging risks for Lloyd’s, responded to
this criticism by using a single die example: Even though the
expected value of a single die roll is 3. 5, you could still roll it
several times and have it average out to be significantly less than
3. 5. That outcome, however, doesn’t necessarily mean that there
is anything wrong with the original die.
Trends for catastrophe risk in insurance, finance, and modeling all clearly show strong growth. On the theory that an
ounce of prevention is worth a pound of cure, this is something
in which all can take some comfort.
clAude PenlAnd is an associate of the Casualty Actuarial
Society and a member of the Academy. He manages the
Pittsburgh-based industry news website, ClaudePenland.com,
and reports on catastrophe risk trends at CatRisky.com.
This article is solely the opinion of its author. It does not express the official
policy of the American Academy of Actuaries; nor does it necessarily reflect
the opinions of the Academy’s individual officers, members, or staff.
GISLounge.com, Sept. 15, 2010. http://
bit.ly/hOxRzA
Suess, Oliver, “Solvency II Tests
European Insurers With EU36.7 Billion
Storm,” Bloomberg, Oct. 25, 2010. http://
bloom.bg/e26oza
“Swiss Re said to be in talks with Indian
government about catastrophe bond
cover,” Artemis, Nov. 17, 2010. http://bit.
ly/chx2TB
“World Catastrophe Reinsurance
Market: Part III, Catastrophe Model
Developments, Impact of Changing
Regulations,” GC Capital Ideas.com,
Sept. 22, 2010. http://bit.ly/btgQUS
Xu, Wei, Okhrin, Ostap, Odening, Martin,
and Ji, Cao, “Systemic Weather Risk and
Crop Insurance: The Case of China,”
Humboldt University, Berlin, October
2010.
http://bit.ly/gXMU3P
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