Tag: Catastrophe Bonds

Slabbed news miscellany: Chip Merlin on the value of listening to other points of view, stealing beer and drinking what can’t be fenced, Swiss Re rings the Bell and the cash register, Michael Grimm to appear at the Silver Slipper in 2 free shows and “for sale” issue advocacy

I have a super busy day ahead but wanted to throw up a few links for the Slabbed Nation because I think we have another banner day shaping up here in cyberspace.  Let’s start with Chip Merlin’s blog where he writes about the value of listening to other points of view:

Slabbed is a blog that grates on those in the insurance industry, its legal counsel and proponents. My impression is that because those from the insurance industry do not like the criticism, positions and strong rhetoric, they stop reading Slabbed and read only those that criticize policyholder advocates, policyholders, and others who pander to the insurance industry. Nobody likes to be criticized or cast in the role of the villain. That is human nature. Yet, I agree with comedian Chris Rock, who stated that “anyone who makes up their mind before hearing the issue is a … fool.”

I was thinking of this while reading the August issue of the Insurance Fraud Letter by Barry Zalma. Zalma, like many in the insurance industry, takes great glee in publicizing when the well known consumer champions fall. I appreciate that those that make a living serving the insurance industry have an allegiance to it and a utilitarian need to pander to those that provide for their living. Still, those self righteous antidotes have worthy lessons and, within the rhetoric, there are often a few jewels. Zalma gave one in his recent newsletter

Chip may be surprised to learn that we are read religiously by certain insurers and insurance professionals though our industry traffic count did take a hit when they started filtering us in Bloomington.  His point is well taken though because we have experienced the other kind of reader as well; people so trapped by their beliefs and ideology they are incapable of seeing other viewpoints.  Chip has singled out Zalma in the past for doing just that, which is part of what makes today’s entry over at his blog so rich. Continue reading “Slabbed news miscellany: Chip Merlin on the value of listening to other points of view, stealing beer and drinking what can’t be fenced, Swiss Re rings the Bell and the cash register, Michael Grimm to appear at the Silver Slipper in 2 free shows and “for sale” issue advocacy”

More news from the Cat House: The unregulated, nefarious Bermudan market for collateralized reinsurance. Can’t match those yields…

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: Continue reading “More news from the Cat House: The unregulated, nefarious Bermudan market for collateralized reinsurance. Can’t match those yields…”

News from the Cat House Part Deux: Bondage and Discipline sometimes missing from the equation

I’ve been sent several articles on the Cat Bond market of late, some very good and some not necessarily worthy of the publication in which they were printed. I’ll start with an article from The Banker Magazine which is not yet online which I read courtesy of Factiva. While the article is generally good the author, Edward Russell-Walling parrots some long discredited facts about Cat Bonds, such as their being non correlated with the broader financial markets which the financial crisis of last year exposed as pure BS and it is there we start:

In 2008, the annus horribilis, non-correlation did not prevent it slumping to $2.7bn. Some hedge funds, which had been prominent players in this market, became distressed sellers and depressed pricing. The situation was aggravated by the downgrade of four cat bonds exposed to Lehman Brothers which, as total return swap counterparty, was effectively holding the investors’ capital.

What the author neglects to mention was “the innovation” of stuffing issues full of subprime mortgages whose accompanying (illusory) high yields no doubt drastically lowered the cost to the issuer. Lehman, as the guarantor, is cited as a problem because of its insolvency but the fact is TARP and the United States taxpayers are what has propped up every such issue so structured as major guarantors like AIG and the other Wall Street investment banks were essentially insolvent meaning their financial guarantees were worthless. Without the Lehman guarantee for instance Allstate’s Willow Re, which defaulted on their interest payments to investors earlier this year, plunged to around 50 cents on the dollar or roughly about what the underlying subprime mortgages were worth.

That said Russell-Walling did give a good explanation of the concept of the “trigger” in these agreements and it is there we pick back up:

One important choice that had to be made was the nature of the trigger. An indemnity trigger is activated by the issuer’s actual losses. So if the cover is for $100m with an excess of $400m, the bond is triggered once claims exceed $400m. Non-indemnity triggers may be based on other mechanisms, such as modelled loss, insured industry loss or physical parameters such as earthquake magnitude or wind speed. Continue reading “News from the Cat House Part Deux: Bondage and Discipline sometimes missing from the equation”

Our good friend Mr CLS asks an interesting question

Ajax RE – named after the suicidal Greek warrior from Homer’s Iliad – were there sufficient funds to repay the bonds’ principle on maturity date of May 8th or just default dead money not talking?

We found Ajax’s achilles heel in early March. We too now wonder if the bagholders I mean bondholders were made whole or if they are suffering their losses in silence.

Meantime it is full speed ahead for USAA and their new Bermuda based SPE Residential Re.

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BREAKING! Bloomberg: Allstate

Mr CLS, a favorite commenter of ours on Yahoo ALL nailed this one well in advance in his post, “The Cheshire Cat who sat in the Willow tREe.”

A. M. Best now puts Lehman Brothers linked cat bonds on credit watch. The bonds in question are:
WILLOW RE Ltd
Ajax Re Ltd
Carillon Re Ltd
Newton Re Ltd.
As the guarantor of the swap counterparty has become bankrupt that technically means the swap agreements are terminated.

Willow weep for me, bend your branches down along the ground and COVER me.

Of course this all begs the question, who is covering Allstate’s Hurricane exposure? Was today’s commentary by AM Best on Allstate’s financial strength a bit premature? Perhaps leave out something? The good folks at Bloomberg tell the what and it is HUGE:

A catastrophe bond sold by Allstate Corp. faces “imminent” default following the collapse of Lehman Brothers Holdings Inc., Standard & Poor’s said. It would be only the second such security to fail in a decade.

New York-based S&P downgraded $250 million of debt sold by Allstate’s Willow Re Ltd. to D, the lowest grade, from CC, according to a Jan. 30 statement. Northbrook, Illinois-based Allstate set up Willow Re as a means of selling the bonds in 2007 to protect against claims from hurricanes, and investment losses by Willow Re aren’t tied to Allstate’s own portfolio.

“The issuer has notified Standard & Poor’s that it will not have sufficient funds to make the scheduled interest payment,” S&P analyst Gary Martucci in New York wrote in the statement. Continue reading “BREAKING! Bloomberg: Allstate”