That’s right folks, this is the market our politicians like Commish Mike Chaney and his band of GOP idiots tell us we should trust and believe in. Never mind what happened when this coutry’s official economic policy was to trust the unregulated derivates market, the gang in Jackson has their story and they are sticking to it. Perhaps this is also why our state’s windpool has become a bottomless pit for taxpayer subsidy. I’ll let the good folks at Risk and Insurance Online explain:
But perhaps the investor summed up all his unspoken concerns when he stood up at the end of the presentation and asked, in not so many words: Isn’t it true that you reinsurance guys keep all the good catastrophe risks for yourselves, then give what’s left to catastrophe bond investors?
It is a matter of debate whether the speakers denied that or not, but what they did say definitely is that collateralized reinsurance has its own special place in the world of insurance-linked securities (ILS), separate from CAT bonds. It’s not that one product covers better property-catastrophe risks than the other.
It’s that collateralized reinsurance has found itself a niche at the bottom of the reinsurance program. Collateralized reinsurance usually comes into play at the lowest layers of a primary carrier’s reinsurance program. We’re talking even below the traditional “working layers” where the big-name reinsurers play.
Yep we have a new kid on the block in Collateralized Re and guess what kids? It operates in a non transparent market out of Bermuda as we continue:
Bonds usually cover something like a one-in-100-year event. Bad things that aren’t supposed to happen. Collateralized reinsurance is for bad events that could, and do, happen…….
The collateral in these arrangements is frequently held in cash or treasuries. Not $1 has been lost over the last couple years in any of the collateralized reinsurance trusts at insurance-focused investment firm Juniperus Capital, according to its chief underwriting officer, Stephen Velotti.
Most amazingly, investors can see returns upward of 20 percent to 30 percent for putting up that collateral.
Talk about a sweet deal but as we well know on the Mississippi coast those yields come off the backs of shipyard workers, school teachers, the elderly and the taxpayers of Mississippi as we continue:
While some at the CAT bond conference put on by IQPC called collateralized reinsurance “pioneering” and an “integral part” of a hedging program, Velotti admitted that “the market has a ways to go.”
As Zeng pointed out, it can still be tricky for investors to enter into because, for one, no centralized market exists. And analytics can also be a hurdle, as licensing expensive catastrophe modeling software is but one part of understanding the underlying exposures.
Still, he predicted, should another active hurricane season occur, the capital markets will not launch another “Class of 2005” of fledgling reinsurance companies Chances are, investors will funnel their cash through vehicles like Bermuda-based Juniperus and Nephilia, which can set up these ILS deals.
For the time being, though, our grumbling investor still considered collateralized reinsurance “the hidden market,” one whose current size no one can be certain of.
Hey Buck you getting the picture dude? Somehow I doubt it but the more the rest of us look, the greater the stench that eminates from your beloved, so called “free market”.