As reported by Swiss Re, insured catastrophe losses for 2006 were USD16.8 billion and reached USD27.6 billion in 2007. While these figures are high compared to the past thirty years, they are significantly below the average of USD37 billion for the past ten years.
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Reinsurer profitability, as measured by the pre-tax ROE for the Guy Carpenter Global Reinsurance Composite, peaked at 21.9 percent in 2006 and declined slightly to 19 percent in 2007. In the first quarter of 2008, the Guy Carpenter Global Reinsurance Composite ROE dropped to 12.5 percent. The industry is still in a strong profit position, though, as the combined ratio in the first quarter was still below 100.
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North America experienced the most substantial ROL drop, declining by 9 percent in 2007 and 16 percent in 2008. ROL in the Asia/Pacific and European regions declined at a slower pace than in North America. ROL dropped by 5 percent in 2008 in Europe and 6 percent in the Asia/Pacific region.
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The Guy Carpenter World ROL Index declined by 10 percent on average at the July 1, 2008 renewal. This compares to a 6 percent drop in property-catastrophe ROL for the same period in 2007.
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Joan Lamm-Tennant, Global Chief Economist and Risk Strategist
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Excess capital is only excessive until you need it. Throughout the year, carriers have struggled to find uses for capital that has not seemed necessary, given the benign loss years that followed the 2005 storm season. Rates are down, retentions are up, and repatriation has been continual. Market conditions have overshadowed analytics in determining carrier behavior. But, aggressive repatriation may have been hasty. Looking to the future, buyback and dividend decisions could benefit from Enterprise Risk Management (ERM).
Recent Legal Developments in Continental Europe Affecting the Casualty Industry is the latest installment in Guy Carpenter’s legislative update series, designed to provide our international clients and markets with a concise overview of key trends in the Continental European legal environment. These issues have had an impact on insurers and reinsurers or are expected to have an impact in the near future.
David Lewin, Head of International Casualty
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The Indexation Clause – otherwise referred to as the Stability Clause, Inflation Clause, or Severe Inflation Clause (SIC) – is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss (XL) reinsurance treaty over the duration of the claims payout pattern. The clause is only relevant to losses that are of a long-tail nature (i.e., that take a long time to become paid) and is commonly found in the terms and conditions of Motor Liability (MTPL), General Liability (GTPL), and Professional Liability TPL XL reinsurance contracts of European cedants.
Thomas Herde, Senior Vice President
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A lot of ink has already been spilt over Europe’s changing claims landscape and the possible consequences for insurers and reinsurers. Recent developments not only suggest that the doors are open for European investors to participate in (and have the benefit of) US securities class actions, but also that the very beast itself eventually will find its way into the European legal system.
Are we at the beginning of a litigation explosion where ambulance-chasers create and fight over a European claims market? Is it the insurance industry which ultimately will finance “affordable justice for all”?
David Priebe, Chairman of Global Client Development
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High-velocity capital was crucial in 2005 and 2006. Hurricanes Katrina, Rita, and Wilma struck with unexpected consequences, and (re)insurers were left with a USD34 billion price tag. Balance sheets were drained, and the hunger for fresh capital was universal. Some replenishment did come from the dedicated capital of traditional reinsurance companies, but for the first time, alternative sources were prominent and accounted for a third of the cash coming into the industry. Sidecars effectively made their large-scale debut at this time, funneling USD13 billion onto carrier balance sheets.
Mark Hewett, Chairman of London Operations
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For several years, carriers have enjoyed a period of low insured losses, and access to cash has not been a problem. Traditional sources have been bolstered by the largesse of hedge funds, private equity funds, and even the wealth of high-net worth investors through a variety of insurance-linked securities (ILS). But, credit market turmoil has brought these conditions to an unceremonious close.
