Catastrophe bond insurance reaches record value of $11bn
Coming soon after Swiss Re’s December of global insurance losses due to natural disasters, which reached $76bn (a 40% year-on-year increase), it is, perhaps, unsurprising that a year market by economic, political and social strife on a global scale should set such a precedent.
In addition to the aforementioned $11bn in pure property cat bonds, Artemis also recorded $761m of health and life bonds, $351m private cat bonds, and $4.3bn mortgage insurance-linked securities (ILS).
2020: A landmark year
as a “a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster,” cat bonds provide issuers with funding in the event that certain, pre-negotiated conditions are met.
Despite initially struggling at the onset of COVID-19, the company that the cat bond and ILS market soon rebounded. Subsequently, it managed to achieve consistent performance and recorded a particularly strong Q4 of $6bn.
"2020 was a landmark year," stated Steve Evans, Owner and Editor of Artemis. “"I've never seen such high-levels of issuance activity in the almost 25 years I've been tracking the development of ILS. This is testament to the resilience of the ILS market and its participants, as well as the utility of catastrophe bonds as a vehicle for transferring risk to the capital markets.”
A busy year ahead
With Martin Bertogg, Head of Cat Perils at Swiss Re, projecting that hurricane activity in the 2021 Western hemisphere will increase, the continual growth of the cat bond market seems a likely prospect:
”Large-scale climate conditions in the North Atlantic suggest elevated hurricane activity for 2021 and likely beyond. This increases the probability of a catastrophic landfall. Combined with the loss impact of secondary perils accelerated by climate change, insured catastrophe losses will only rise in the future.”
Evans is in agreement, stating, “All the signs point to another busy year for catastrophe bonds and ILS as risk transfer structures, as sponsors increasingly look to the global capital markets as an efficient source of insurance protection."
AIG to sell US$7.3bn of insurance assets to Blackstone
American International Group Inc. (AIG) has agreed to sell insurance assets to Blackstone Group Inc. for a total of US$7.3bn. The sale will be split into a 9.9% equity stake to be sold for US$2.2bn, and affordable housing assets for US$5.1bn.
The insurer and private equity firm have agreed to form a “long-term strategic asset management relationship” for an initial $50 billion from the life and retirement portfolio, with the deal building on two of Blackstone’s initiatives: to build permanent capital by expanding into insurance and to pursue lower-cost rentals for its real estate business.
AIG-Blackstone asset management deal to grow to US$92.5bn in the next six years
The asset management deal between AIG and Blackstone is expected to reach a value of US$92.5bn within the next six years. Jon Gray, President and Chief Operating Officer of Blackstone, said: “We are honored to become AIG’s strategic partner, supporting the growth and success of one the world’s top life insurers as a standalone business. We believe our leading private credit origination platform will play an important role to help meet long-term policyholder obligations while maintaining strong credit quality”.
In May earlier this year, Blackstone told the San Diego Union-Tribune that it was purchasing around 5,800 apartments in San Diego from the Conrad Prebys Foundation for a sale price of over US$1bn. The company said that it was going to keep most of the rentals affordable for residents who make up “80% or less of the area median income”.
Following this announcement, AIG saw a rise in extended trading by 6.7%, closing at US$46.41 in New York. Meanwhile, Blackstone rose about 4% and closed at US$98.65.
An attraction to insurance
Blackstone, as well as other private equity businesses such as Apollo Global Management Inc. and KKR & Co., have been attracted to insurance because it generates a steady stream of investable capital. This expansion in permanent capital helps firms become less reliant on the ups and downs of the private equity model, which normally requires regular fundraising from several institutions.
Investment companies have also benefited from a movement by insurers to dispose of life businesses and reduce non-core assets in order to raise capital. In January, Blackstone purchased a life business from Allstate Corp. for US$2.8bn, enabling the company to oversee a US$28bn portfolio as part of the deal.