Swiss Re establishes Australia's first catastrophe bond.
Australia's first catastrophe bond will give Swiss Re multi-year protection for earthquakes and tropical storms without exposure to counter-party credit risk.
Keith Scott, Swiss Re's head of Australia & New Zealand property/casualty business, said the three-year $100m bond was issued through a special purpose vehicle, Australis Ltd. Cover is triggered by parametric indexes of earthquake magnitude or wind speed. Scott would not disclose what the triggers were likely to be because the fund was financed by private investors, but said triggers varied, depending on the insured risks.
He said insurance-linked securities were growing in popularity and were a particularly valuable tool in the Australian and Asian markets.
If events that trigger cover do not occur, investors get their money back with interest. “We expect this cat bond will only be exposed twice in 100 years. [The events] are infrequent, but when they occur they are big,” Scott said.Benfield's natural catastrophes specialist Russell Blong said researchers had no ability to accurately predict earthquakes in Australia, particularly because there were no major fault lines like the San Andreas fault that ran through California. “Clearly we have earthquakes that cause damage to insured property in Australia, [including] the Newcastle earthquake in 1989... but you can't predict them.” The Newcastle quake caused 13 deaths and cost $877.3m in insured losses.
Dr Blong said despite much debate and alternative theories on climate change, cyclones also were very difficult to predict. “For meteorological perils we have to realise we don't live in a static environment.” He said Australian weather conditions were influenced by El Niño and it was still largely unknown how that phenomenon impacted weather.