In Europe, until recently, the comparable figure was zero.

Luzi Hitz, the CEO of Zurich-based Perils, is reluctant to extrapolate from that figure that the European cat risk market is poised to double insize since the formation of his organisation early in 2009. However, this year, $250 million of European wind storm risk has been transferred based on Perils’s industry loss indexes, including this year’s Environmental Finance Cat Risk Deal of the Year, the $120 million Successor X bond,sponsored by Swiss Re.

It’s an ill-wind: windstorm Kyrill led to the launch of Perils

“The lack of an independent loss index provider was inhibiting the development of the market,” he notes. “Industry loss is quite a simple concept. It’s transparent and appealing to sponsors and investors alike.”

The creation of Perils was triggered by Windstorm Kyrill, in early 2007, when early efforts to estimate losses varied widely. It prompted anindustry body, the Chief Risk Officer forum, to ask whether an independent data provider couldn’t be established to collate losses from insurers.Last January, Perils was created, under the ownership of nine of Europe’s largest insurance groups.

Perils collates its indexes by collecting windstorm loss data from more than 60 insurers, accounting for 50% of the market, across nine countries in Europe, and is working to add more, Hitz says.

Martin Bisping, head of non-life risk transformation at Swiss Re in Zurich, says that using the Perils index offers a number of advantages over the parametric indexes used before – which are based on a physical parameter, such as wind speed, rather than actual losses. “It’s a very efficient way to reduce basis risk”, that is, the risk that the actual losses suffered do not match the risk transferred, he says.

It also allows for much faster actual loss estimates – 60 days, ratherthan the 18–24 months hitherto.

Swiss Re’s three-year bond pays between 9.75% and 16.75%, with expected losses ranging from 3.8% to 8.9%, across three classes. It is the latest from the reinsurer’s $1.6 billion Successor programme which, Bisping says, allows for very rapid issuance of bonds.

Bisping describes the launch of Perils as “a significant step forward for opening the risk transfer market,” and anticipates that Swiss Re will issue further bonds referenced to its indexes.