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January 23, 2007

Swiss Re backs independent European agency to assess Nat CAT risks

January 23, 2007, Insurance Journal©

Swiss Re has issued a "focused report," which assess the growth of the catastrophe bond market and calls for the establishment of an independent agency to "aggregate European claims data and provide the insurance industry with an efficient market loss index for natural catastrophe risks. This industry-wide effort will facilitate the further expansion of the insurance-linked securities (ILS) market in Europe and improve the transparency of natural catastrophe claims data."

According to the world's largest reinsurer, "current industry trends indicate that the European insurance industry will benefit from greater access to capital market solutions to cover natural catastrophe risks."

Swiss Re noted the significant growth in the market for "insurance-linked securities, with 2006 being a "record year with the issuance of catastrophe bonds increasing by 130 percent, bringing the total outstanding catastrophe bonds to $8.1 billion."

The growth in the market has been accompanied by "the widespread use of market loss indexes as bond loss triggers for US risks," the report continued. "In addition, the market for industry loss warranties (ILW) has grown significantly for US natural catastrophe exposures and currently totals in excess of $4 billion."

Swiss Re said, however, that the growth in the ILS and ILW markets "remains constrained due to the lack of an independent agency to collect industry-wide data and establish a reliable and effective market loss index."

"Industry loss indexes are key to unlocking additional capital market capacity for European insurers. With industry-wide support, this initiative can expand the traditional reinsurance and capital market solutions available to European insurers," noted Philip Lotz CEO of Capital Management and Advisory at Swiss Re.

"In addition to the advantages of more robust European ILS and ILW markets, reliable market loss data will benefit the industry by improving benchmarking, underwriting and exposure management," said the report.

The publication aims to "engage a dialogue within the European insurance industry and help bring about a practical and independent solution for establishing an European market loss index. In addition to the advantages of more robust European ILS and ILW markets, reliable market loss data will benefit the industry by improving benchmarking, underwriting and exposure management.

"With its new publication, Swiss Re aims to engage a dialogue within the European insurance industry and help bring about a practical and independent solution for establishing an European market loss index."

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