The research study covers the present scenario and growth prospects of the global catastrophe insurance market for 2016-2020. To calculate the market size, the report considers the global loss insured from the catastrophe insurance market in the Americas, APAC, and EMEA.
It is important for catastrophe insurers to understand and predict the inter-decadal and decadal variability. Therefore, it is important that the CAT modelers must quantify the risks by taking into consideration the atmospheric science and geophysical fluid dynamics. These would help them in understanding the models. Thus, it gives the right prediction to the insurer when it becomes difficult as in the case of different scenarios like predicting the occurrence of a disaster based on surface temperatures of the Atlantic Ocean. This has an influence on the north Atlantic circulation patterns and hurricanes that generate storm actions in the European region.
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Technavio analysts highlight the following three factors that are contributing to the growth of the global catastrophe insurance market:
- Catastrophe bond pricing and valuation strategies
- Regulatory support for public-private cooperation on building resilient infrastructure and better risk governance
- Climatic changes
Catastrophe bond pricing and valuation strategies
The insurance industry is considered a cyclical industry. Therefore, insurers are formulating different strategies to earn positive yields and generate cash flows during the forecast period. Such strategies should bring in stable earnings year-over-year for players in the insurance industry. Catastrophe bonds help the investors to earn good returns that are uncorrelated with the broader financial markets. It helps the portfolio managers in making more informed decisions in allocating the capital and by understanding the attributes of the pricing trends. The insurance company makes use of catastrophe bonds so that it can transfer insurance risk to the capital markets.
Amit Sharma, a lead research analyst at Technavio, says, “In the present market scenario, catastrophe bonds have evolved into valuable risk management and investment tools where there is incorporation of different elements from both the debt capital and reinsurance markets. Catastrophe bonds provide alternative means to capitalize reinsurance transactions.”
Regulatory support for public-private cooperation on building resilient infrastructure and better risk governance
Globally huge losses are incurred due to damages caused due to natural disasters. The role of government plays a very important role wherein it requires the government to develop a comprehensive disaster management framework. One of the popular disaster management frameworks is public-private partnership (PPP) model that has become a popular way for governments to engage private sector players in strengthening infrastructure (thereby increasing the quality and providing better value for money). PPP is considered as a strategic approach to minimize the negative impacts of disasters, particularly in the developing countries.
“Top insurance firms are expected to invest more in innovative products, distribution, and service strategies. The growing size and complexity of the economy have triggered an increase in the demand for insurance against various risks. This has deepened market penetration of insurance products and may boost demand for insurance products during the forecast period,” adds Amit.
Climatic changes have occurred due to the various natural and manmade disasters. Therefore, the insurance company requires not only to focus on the historical data but also to have forward projections. Climate change has brought in extreme weather events, and therefore insurance companies need to understand the change in the frequency of the extreme weather condition. Therefore, the insurance companies, reinsurance companies, capital markets, and governments are making use of various catastrophe modeling technologies.
This helps them in understanding the risk selection process, underwriting the process, risk mitigation strategies, portfolio optimization, risk transfer mechanisms, reinsurance decision-making, portfolio pricing, reserving and rate making, capital setting and exposure and aggregate management.
- Berkshire Hathaway
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