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Speaker 1: Come on, this is becoming a catastrophe. Catastrophe bonn issuance

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Speaker 1: was at eight point fifteen billion as of June, pushing

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Speaker 1: the outstanding cat bond market to a new record at

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Speaker 1: over twenty nine billion. Here with a look at the

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Speaker 1: catastrophe bond market. Daniel Strander, he standard excuse me, he

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Speaker 1: is global Managing director at RMS Risk Management Solutions. It's

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Speaker 1: a global catastrophe risk modeling company. He joins us on

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Speaker 1: the phone from the UK. Daniel, nice to have you

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Speaker 1: here on Bloomberg Radio. Welcome. Talk to us at bit

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Speaker 1: about the catastrophe book catastrophe bond market and the type

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Speaker 1: of issuance we've seen, well, we've seen on presidented issuance

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Speaker 1: this year. It's a market that's been growing considerably over time.

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Speaker 1: And we saw, if you like, go back to the

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Speaker 1: nineteen nineties when they first began, they were the preserved

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Speaker 1: really of financial services companies sharing risk with one another UM.

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Speaker 1: And then more recently was found that public effector entities

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Speaker 1: to the governments UM and large corporates have been experimenting

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Speaker 1: with them and they've been catching on and the market

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Speaker 1: has been increasing. That's interesting. You know, investors who are

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Speaker 1: maybe curious about this market. What is it that they

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Speaker 1: need to know before kind of venturing in. That's a

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Speaker 1: really good question actually, because this this market you need

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Speaker 1: to you need to understand very well. UM. So firstly,

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Speaker 1: maybe I should just explain what a parametric cat bond

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Speaker 1: is in case any of your listeners aren't wear UM.

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Speaker 1: So it's essentially a risk linked security on which transfers

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Speaker 1: a specific set of risks from the issue or to

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Speaker 1: an investor, and the investors obviously take on the risks

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Speaker 1: of a specified event occurring in return to a radio return.

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Speaker 1: Should the qualifying event occur, then obviously the investors lose

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Speaker 1: their principle um and that they've invested, and the issuer

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Speaker 1: would receive that money to cover their anticipated losses. So

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Speaker 1: if you're going to move into this market, you really

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Speaker 1: need to be able to understand the triggers that calls

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Speaker 1: payouts for these kinds of parametric cat BOMs. What are

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Speaker 1: the typical kind of parametric cat bonds that are out

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Speaker 1: there that are issued so that they used to cover

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Speaker 1: a whole range of different perils risks. Essentially, anything that

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Speaker 1: you can measure which can act as a reliable proxy

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Speaker 1: for a loss can be turned into a securitized bond.

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Speaker 1: So let me give you an example. Um In two

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Speaker 1: thousands and three, FIFA, the world governing authority for the soccer,

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Speaker 1: securitized the risk of the two thousand and six World

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Speaker 1: Cup not taking place, specifically the final itself not happening,

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Speaker 1: and so they essentially bought one of these parametric bombs

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Speaker 1: to securitize that risk. But similarly, applicant nations have bought

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Speaker 1: cat bombs to cover themselves for the impacts of crops.

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Speaker 1: Caribbean islands have bought them for for hurricanes and for windstorms.

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Speaker 1: The country of Turkey buys one to protect itself from

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Speaker 1: catastrophic earthquake. The state of California buys them to protect

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Speaker 1: itself from the earthquake. And we've just seen New York

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Speaker 1: State renew its cat bond um for UM for it's

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Speaker 1: mt A in the in the downtown um um SO

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Speaker 1: in the Downstate region to cover all of its metro facilities.

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Speaker 1: And I should also mention that pandemic infectious disease was

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Speaker 1: recently securitized for the first time. So you have a

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Speaker 1: whole range of different types of shocks and stresses that

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Speaker 1: can be securitized through these these these mechanisms. What are

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Speaker 1: the typical durations on this type of investment UM. I

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Speaker 1: would say a clippical bond length is about three years UM.

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Speaker 1: And what you tend to find is that issuers have

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Speaker 1: a rolling program of them. So I ment and the

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Speaker 1: State of California, the California Earthquake Authority just UM issued

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Speaker 1: a bond for nine twenty five million UM. That wasn't

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Speaker 1: its first bond. It had a portfolio of that was

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Speaker 1: in excessive a billion outstanding. And typically they roll around

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Speaker 1: three years UM. And as one rolls off, you have

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Speaker 1: the option to renew or miss out a year and

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Speaker 1: then come back to the market the year later. So

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Speaker 1: we we've seen bond transaction links with a but a

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Speaker 1: short output, but the typical duration is around three years.

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Speaker 1: Very different though from an insurance policy, right in terms

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Speaker 1: of kind of how they work and certainly in terms

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Speaker 1: of what triggers them. Yes, well there's there's some two differences. Mean,

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Speaker 1: they are a bit like insurance, but there are probably

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Speaker 1: four types of key differences. So first of all, it's

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Speaker 1: the investors UM. It's not your traditional insurance investors. They're

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Speaker 1: what I would call regular in the suspension funds, hedge funds,

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Speaker 1: those that historically have tended to invest in core assets

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Speaker 1: for money markets, large cap equities, property, um. But so

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Speaker 1: so that's the first thing that's different the the investor base, Daniel,

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Speaker 1: we just have we just have about twenty seconds left here,

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Speaker 1: so I just want to let you be able to

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Speaker 1: finish a complete diet. Go ahead, Yeah, sure, So then

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Speaker 1: I would say, unlike an insurance policy which has an

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Speaker 1: annual term, we just covered this the multi year that

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Speaker 1: gives the issue some security. Third, importantly, the capital is

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Speaker 1: fully collateralized, sitting in the third party account waiting to

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Speaker 1: be claimed. And finally, make the most interestingly is the

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Speaker 1: way the bodies are trigger Have you mentioned this before.

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Speaker 1: Unlike traditional insurance, which is indemnity based, where you have

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Speaker 1: to prove that you had a loss, with these paramitric triggers,

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Speaker 1: you don't necessarily have to prove a loss. Rather, they

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Speaker 1: trigger with certain conditions and met when the ground shakes

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Speaker 1: or when the wind blows. Daniel Standard, thank you so

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Speaker 1: much for walking us through that. From r M S