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Best’s Special Report: Risk, Return and Diversification Affect Cost of Capital Through the Cycle
OLDWICK, N.J.–(BUSINESS WIRE)–An insurance company’s ability to access and raise capital and the
potential costs of raising capital, especially during times of stress,
are important considerations in AM Best’s ratings process. In a
new report, AM Best explores the factors that can affect an insurer’s
weighted average cost of capital, which can differ by industry segment.
The Best’s Special Report, titled, “Risk, Return and
Diversification Affect Cost of Capital Through the Cycle,” notes that
the cost of capital is a forward-looking measurement used to determine a
required return on investment. For an overall return to be generated,
the return on invested capital should exceed the cost of capital. A
publicly traded insurer has access to multiple sources of capital:
equity, preferred stock or debt with various forms of subordination.
Although mutual insurers cannot issue stock, they do have access to
capital in the form of surplus notes, lines of credit and debt. The
weighted average cost of capital (WACC) takes into account the sources
as well as the associated costs of raising capital. For each major
insurance segment, the cost of capital peaked during the financial
crisis, attributable to the extreme volatility, when correlations
increased beyond expectation. In the years following the financial
crisis, risk-free rates declined to historical lows owing to
quantitative easing and low interest rates and the cost of capital
dropped correspondingly.
Property/casualty (re)insurance is a cyclical industry, dictated by the
supply of capital. Hard markets are times when the industry earns a
return higher than its cost of capital, as it attracts capital from
investors who want to share in the industry’s profitability. However,
hard markets over time can result in excess capital, intensified
competition and higher pressure on pricing and profitability. Reserve
development also is an important factor, as adverse development can
negatively affect calendar-year performance. Reinsurers have a low cost
of capital, because catastrophe risk is seen as non-correlated with the
capital markets. The report notes that this in part is a reason for the
growth of insurance-linked securities and the growing influx of
third-party capital, which promises a higher yield in a low
interest-rate environment. Still, in 2017-2018, the weighted average
cost of capital for reinsurers increased owing to severe weather
patterns.
The life/annuity segment is more-correlated to the overall business
cycle, and as a result, life/annuity insurers have a higher cost of
capital compared with other insurance segments. During the financial
crisis, life/annuity insurers did not earn returns sufficient to cover
their cost of capital, and in the following years, struggled due to
persistently low interest rates. To minimize spread compression,
companies have traded down the credit scale and increased liquidity
risk. Health insurers’ returns are highly correlated to the cost of
medical care, as measured by the medical Consumer Price Index. Although
morbidity risk is not correlated to market risk, health insurers’
returns depend on their ability to manage medical care services and
commodities.
Insurance companies operate under a variety of structures—mutual,
publicly traded, fraternal, reciprocal and captive—so AM Best’s ratings
approach is not a one-size-fits-all endeavor. AM Best looks at all
relevant factors and may have various benchmarks and expectations
depending on the insurer’s structure and operating model. Ultimately, AM
Best evaluates the financial strength of companies in the context of its
building blocks: balance sheet strength, operating performance, business
profile and enterprise risk management.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285830.
AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
Contacts
Josie Novak
Associate Analyst
+1 908 439
2200, ext. 5242
[email protected]
Sridhar Manyem
Director, Industry Research and Analytics
+1
908 439 2200, ext. 5612
[email protected]
Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
[email protected]
Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
[email protected]
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Cannabis
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Humboldt
Humboldt Seed Company partners with Apollo Green to bring California cannabis genetics to the global marketplace
Apollo Green to distribute Humboldt Seed Company clonal cannabis genetics to Germany, Portugal and Australia
SAN FRANCISCO, April 30, 2024 /PRNewswire/ — Humboldt Seed Company (HSC), California’s leading cannabis seed producer, has announced a partnership with Canadian-based Apollo Green to make eight breeder cuts available to researchers, licensed commercial cultivators and home growers in legal markets worldwide. This first-to-market clonal genetics release is a significant milestone and will expand access to distinctive, high-quality cannabis genetics in both established and emerging global markets including Germany, Portugal and Australia.
The curated, breeder-verified selection includes pioneering triploid genetics, such as OG Triploid and Donutz Triploid alongside the legendary cult classic Blueberry Muffin. Also available are All Gas OG with a THC content of 21% and four high-THC strains in the 30-35% range: Golden Sands, Guzzlerz, Jelly Donutz and Orange Creampop. These selections represent the top .01% from HSC’s extensive California pheno-hunting program.
Exports will begin in May under Apollo Green’s Canadian federal cannabis license. All shipments have Canadian phytosanitary certification, ensuring plants have been inspected, and are clean and free of pests.
“Access for all to quality genetics has been our core focus since the beginning,” said HSC Co-founder and Chief Science Officer, Benjamin Lind. “Our science-based approach to breeding aligns perfectly with Apollo Green’s high standards and we are excited to be able to extend these hand-selected cuts to a wider audience, especially at this pivotal time where we’re seeing positive regulatory changes globally.”
Oisin Tierney, Apollo Green Director of Business Development, said, “California has long been recognized for setting industry standards, and we are proud to play a role in bringing these esteemed genetics to cultivators worldwide. The triploids are especially noteworthy in terms of the unprecedented potential for enhanced plant vigor, higher yields, shorter flowering times and superior returns for solventless extraction.”
About Humboldt Seed Company
Established in 2001, Humboldt Seed Company is a Northern California heritage brand providing quality cannabis genetics to commercial cultivators and home growers in legalized states across the U.S. and international markets including Spain, Canada, Jamaica, South Africa, Colombia, France, Portugal, Greece, the UK, Malta and Thailand. With a focus on environmental and social justice, they combine traditional breeding and modern scientific practices in their strain development program. They have served the cannabis community for over two decades.
For more information visit https://humboldtseedcompany.com/.
About Apollo Green
Licensed since 2019, Apollo Green is Canada’s leader in cannabis genetics. The company’s mission is to provide an ever-growing bank of seeds and clones to medical patients and recreational consumers. Apollo Green provides clean, trusted cannabis seeds and clones, which are backed by the foremost tissue culture technology to reduce risks, costs and time-to-market for licensed producers around the world. Apollo Green is passionate about cannabis genetics.
For more information visit https://apollogreen.com/.
Media contact
Jaana Prall
[email protected]
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View original content:https://www.prnewswire.co.uk/news-releases/humboldt-seed-company-partners-with-apollo-green-to-bring-california-cannabis-genetics-to-the-global-marketplace-302131618.html
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