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Extreme Catastrophe Exposures Are the Capital Markets the Answer?. Grahame Chilton, CEO, Benfield. Overview. Top 10 Most Costly Hurricanes in US History (Insured Losses). Source: Swiss Re sigma No 2/2006, losses indexed to 2005. - PowerPoint PPT Presentation
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Extreme Catastrophe ExposuresAre the Capital Markets the Answer?
Grahame Chilton, CEO, Benfield
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Overview
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
$2.7 $4.1 $4.2 $5.2 $6.6 $8.3 $10.0 $11.7
$22.3
$45.0
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$ B
illio
ns
Top 10 Most Costly Hurricanes in US History (Insured Losses)
Source: Swiss Re sigma No 2/2006, losses indexed to 2005
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
4
6
6
5
4
6
88
5
8
6
9
1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000+
*Figure for 2000s is extrapolated based on data for 2000-2005 (6 major storms: Charley, Ivan, Jeanne (2004) & Katrina, Rita, Wilma (2005)).Source: Tillinghast from National Hurricane Center: http://www.nhc.noaa.gov/pastint.shtm.
10
1930s – mid-1960s:
Period of Intense Tropical Cyclone Activity
Mid-1990s – 2030s?
New Period of Intense Tropical Cyclone Activity
Tropical cyclone activity in the mid-1990s entered the active phase of
the “multi-decadal signal” that could last into the 2030s
Already as many major storms in 2000-2005 as in all of the 1990s
Number of Major (Category 3, 4, 5) Hurricanes Striking the US by Decade
Est.
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2006
Forecast US land falling hurricane activity
30% above the 1950 -2005 norm in 2006
(Forecast 4th August 2006)
Professor Mark Saunders, Dr. Adam Lea, Tropical Storm Risk Consortium
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Comparing 2004 to Past Years
Only 2004 Has Had 4 Hurricanes Making Landfall in this Region
0
1
2
3
4
5
1926 1935 1950 1964 2004
Sa
ffir
-Sim
ps
on
Ca
teg
ory
All Years (1899-2004) With 3 or More Hurricanes Making
Landfall Between Mobile Bay & Jacksonville, FL
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Source : Rigzone – 26/9/2005
Katrina & Rita: storm tracks
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
50
64
29
40
613
3
0
10
20
30
40
50
60
70
Hurricane Katrina Hurricane Rita
Destroyed Damaged Rigs Adrift Unaccounted For
No. of Platforms/Rigs Destroyed, Damaged or Adrift, as of October 4, 2005.
Source: Minerals Management Service (MMS), US Department of the Interior.
Hurricanes Katrina/Rita: Damage to Oil Platforms and Rigs in Gulf of Mexico
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Estimated Energy Losses 2004/2005
OIL, Assureds Retentions Uncovered
Claims
OIL, Assureds Retentions Uncovered
Claims
CAT Losses$5.1B
CAT Losses$9.1B$12.9B
$3.8B
Operational Losses
Estimated Premium
$2.8B
Estimated Premium
$2.8B
Commercial Market Losses
Commercial Market Losses
$7.7B
$2.6B
2004 2005
Operational Losses
$18.8B Total Losses
$10.2B TotalLosses
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
2004-2005 Combined
Global Commercial Market Premium
Global Commercial
Market Premium
Global Commercial Energy Market Insured
Losses
$5.6B
$18.0B
Estimated Combined Loss Ratio (2004/2005) = 321%
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Post Ivan, Katrina and Rita
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Source: WeatherUnderground.com, January 18, 2006.
2005 Hurricane Season
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Reinsurance market overview
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Largest insured catastrophe losses
Source: Swiss Re
0
10
20
30
40
50
60
70
80
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
US
D b
n (
2005
pri
ces)
Natural Catastrophes Man-made Catastrophes
1994 Northridge Earthquake
1992 Hurricane Andrew
1999 Storm Lothar
2001 September 11
2005 Katrina, Rita, Wilma
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Post-KRW new capital 2005-6
0
5
10
15
20
25
1992/3 2001/2 2005/6 1992/3 2001/2 2005/6 1992/3 2001/2 2005/6
Cap
ital
rai
sed
US
Db
n
Cat bonds
Sidecars
Recapitalisation
Start-ups
Recaps and Start ups Sidecars Cat Bonds
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The new market spectrum
Capital markets
Rei
nsur
ance
Retro
Property Cat
Hedge fund SPVs
Cat bonds
Hybrid capital
ART
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
1 Based on Benfield analysis using RMS v5.0
Many Programs Partially Placed
June 2006 Renewals
0%
10%
20%
30%
40%
50%
60%
0% 5% 10% 15% 20% 25% 30%
2005 BOUND PROGRAMS VS 2006 MARKET QUOTES
Probability of Attachment1
Rat
e O
n L
ine
2005 Bound
2006 Quotes
Price Increases Outstrip Risk
US Property Catastrophe Reinsurance: June 06
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Gulf Exposed/Loss Sensitive Programs Hit Hardest
*Other includes four companies with Puerto Rico and Texas exposure
PRICE IMPACT BY RENEWAL DATE(Percent Increase)
January 112 10 45June 236 74 154
HI LO AVG
January 40 0 13June 35 6 20
HI LO AVG
With Ceded Loss
Without Ceded Loss
Source: Benfield analysis of Jan – July placements.
July 164 65 104
July 57 36 47
AVERAGE ROL CHANGE FOR TOTAL BENFIELD LIMIT PLACED ( Percent )
Southeast 13.60 5.65 140.45
Nationwide 12.60 6.07 108.29
Florida 20.20 9.97 102.45
Northeast 4.30 3.45 25.93
California 6.70 5.96 11.94
Other* 6.32 5.63 11.38
Midwest 6.20 5.98 4.38
Total 10.70 6.11 74.57
Region 2006 ROL 2005 ROL Change
Source: Benfield analysis of Jan – June placements. Other includes four companies with Puerto Rico and Texas exposure.
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Jan.22% Feb.-May
11%
June65%
0.0
20.0
40.0
60.0
80.0
Limit Change
AVERAGE PROGRAMME LIMIT INCREASES VERSUS 2005 ( Percent Change )
US Property Catastrophe: Limit purchased
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Solutions for Current Dislocation
RMS Estimate of New Capital Required
$124 billion
Cat Bonds
Sidecars
Risk Transfer to Capital Markets
Startups
Capital Raising
Risk Financing from Capital Markets
Retained EarningsBenefits of Increased Pricing & Improved Risk Management
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Solutions for Current Dislocation
RMS Estimate of New Capital Required
$124 billion
Cat Bonds
Sidecars
Risk Transfer to Capital Markets
Startups
Capital Raising
Risk Financing from Capital Markets
Retained EarningsBenefits of Increased Pricing & Improved Risk Management
Merrill Lynch JV
Starbound Re
Montpelier, Glacier, Lancashire
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
A Benfield Solution: Starbound Re
• A sidecar (dedicated underwriting vehicle) created by Benfield and Renaissance Re in May/June 2006
• Specifically structured for the Florida exposures of Benfield customers using detailed portfolio data
• Created US$285 million of additional Florida catastrophe capacity exclusive to Benfield
• No other broker was able to respond to the Florida capacity crunch in this way
• Numerous Benfield customers with Florida exposures benefited and were able to complete their renewal programmes as a result
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Alternative Capacity Will Become More Significant
• Bermuda sidecars, start-ups and
recapitalization offset some reduction
in other region capacity / additional
limit for 2006 property cat renewals
SAMPLE 6/1 PROPERTY CAT LIMIT DISTRIBUTION( Percent )
Traditional Catastrophe Coverage
• ILW placements expected to double this year
2005 limit placed approx. $2bn
2006 limit expected: $3bn - $4bn
• Considerable activity in Cat Bond market
following Katrina
Record number of first time sponsors in 2005 (AXA, Zurich, FM Global, Montpelier Re)
• Capital Markets appetite may better serve as
stabilizing force for large events
2004 global reinsurance surplus = approx. $377bn
2004 global securities and bank assets = approx. $144trillion
Alternative Catastrophe Coverage
24.7
26.2
34.5
53.4
8.2
8.3
32.6
12.1
0.0 20.0 40.0 60.0 80.0 100.0
2005
2006
Domestic Bermuda Europe London
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The new market spectrum
Capital markets
Rei
nsur
ance
Retro
Property Cat
Hedge fund SPVs
Cat bonds
Hybrid capital
ART
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Benfield Capabilities
Capital markets
Rei
nsur
ance
Retro
Property Cat
Hedge fund SPVs
Cat bonds
Hybrid capital
ART
Analytics
The information contained in this document is strictly proprietary and confidential. © Benfield 2006
Questions
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