Archive for September, 2008



September 25th, 2008

Don’t Step on Your Long Tail

Posted at 6:21 PM ET

Eddy Vanbeneden, Managing Direcor
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With casualty reserves, it can be difficult to determine how much is too much. Unlike property reserves, which are mostly for specific known events, casualty reserves have to be sufficient to cover events that may unfold well into the future. A lot can happen in 15 or 20 years, which only serves to compound the uncertainty that casualty carriers face. Further complicating matters, there has been a dearth of viable ways to mitigate the plethora of risks that could converge on a casualty portfolio, leaving risk-bearers to learn that reserves are lacking years after they have accepted a risk.

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September 18th, 2008

The Casualty Catastrophe Domino Effect

Posted at 6:10 PM ET

David Lewin, Head of International Casualty
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Sometimes, a single incident can trigger a chain reaction. Before you realize what has happened, economic damage has mounted, and claims are being filed. Particularly surprising is that the companies being affected were not really involved in the initial event. This risk, “casualty catastrophe,” has become increasingly frequent and severe in recent years, yet casualty writers remain exposed. The threat is difficult to detect, as it arises from the connections among businesses rather than a specific peril. Consequently, casualty catastrophe has been almost impossible to analyze and mitigate. New modeling techniques, though, may help (re)insurers manage their capital more effectively.

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September 12th, 2008

The Advantage of Custom Scenarios for Solvency II Compliance

Posted at 6:22 PM ET

Frank Achtert, Managing Director
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The objective of Solvency II—expected to take effect in 2012—is simple. The regulation seeks to protect policyholders and the global insurance system through adequate, risk-based capital (RBC) requirements. Carriers will have to demonstrate a 99.5 percent likelihood of solvency for the coming 12 months, based on the risks they hold in their portfolios. There are several ways for European (re)insurers to comply, and the latest Quantitative Impact Study Draft 4 (QIS Draft 4) explains the alternatives for demonstrating compliance. For some, Solvency II signals yet another cost of doing business, but beneath the surface, carriers may find opportunities to turn compliance into market risk management advantage.

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September 10th, 2008

Chart: Effects of Different Types of Indexation Clause

Posted at 7:08 PM ET

The amount of the expected recovery from long-tail XL reinsurance treaties of course will vary in line with the differing provisions of these clauses.

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September 10th, 2008

Chart: Illustrated Effects of Indexation Clauses

Posted at 7:08 PM ET

The amount of the expected recovery from long-tail XL reinsurance treaties of course will vary in line with the differing provisions of these clauses.

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September 10th, 2008

Chart Room: Comparison of Indexation Clauses by Country

Posted at 6:57 PM ET

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September 10th, 2008

Chart: Evolving Capital Model for Insurance Risks

Posted at 2:46 PM ET

The amount coming into the market has increased after each mega-catastrophe. This probably reflects the increased knowledge of insurance markets by the investment community, the increased liquidity and depth of capital markets overall, and the growing size of the losses and concomitant opportunity.

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September 10th, 2008

Chart: Price Comparison - Traditional Reinsurance vs. Catastrophe Bonds

Posted at 2:41 PM ET

For placement where the expected LOL is less than 1 percent, capital market solutions are most attractive, as most reinsurers will charge minimum ROLs while capital markets can diversify. LOLs between 1 percent and 7 percent suggest convergence. The diagram shows a number of instances where catastrophe bonds are priced below traditional reinsurance. For LOLs higher than 7 percent, traditional markets dominate, due to the higher underwriting sophistication and knowledge required.

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September 10th, 2008

Chart: Flood Losses Worldwide

Posted at 2:36 PM ET

Record-breaking floods around the world – in countries as scattered as the UK Myanmar, Australia, and the United States – have focused considerable attention on this peril. Insured flood losses have increased dramatically over the past few years.

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September 10th, 2008

Chart: Global Stock Markets Under Pressure

Posted at 2:28 PM ET

On the asset front, the majority of insurers and reinsurers have reported minimal direct exposure to mortgage-backed securities, while a few large global players have reported losses in the USD billions. Indirectly, the weak economy, compounded by fears of global financial collapse, is leading to a bear market in equities. This is putting pressure on reinsurer finances. Given the standard definition of a bear market as a 20 percent decline in price, both France and Germany are experiencing bear market conditions, which are also reflected in the UK FTSE 1000.

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