David Priebe, Chairman of Global Client Development
Contact

Earlier this year, the (re)insurance industry celebrated an abundance of capital. Buybacks and dividends were common, as carriers struggled to find productive uses for their extra cash. Only a few months later, we are in the midst of a financial catastrophe that is wreaking havoc on balance sheets and constraining carrier access to capital. And, the situation could worsen. A major catastrophe event could place substantial demands on (re)insurer capital in a climate where replenishment would be both time-consuming and costly.

Continue reading…

The unfolding financial catastrophe continues to affect banks to a much greater extent than reinsurers. According to Bloomberg data, the weighted average book value of the S&P 500 Banks Index has dropped 34 percent year-over-year, reflecting the impairment of investment assets, particularly in September. The weighted book value of the S&P 500 Insurance Index, on the other hand, is off only 9 percent from a year ago. Though the effects of the financial catastrophe have been felt, (re)insurers have been able to withstand them.

Refined risk management strategies, copious amounts of capital, and conservative investment strategies have protected carrier balance sheets.

Read more on this subject >>

Andrew Marcell, CEO of Americas
Contact

The financial catastrophe that has taken hold of global financial markets has caused much consternation for (re)insurers. Balance sheets have been hit, impairing investment assets and depressing surpluses across the industry. Yet, carriers are faring better than most financial services firms (particularly those in the banking sector), largely because the industry is quite well-capitalized. Even in this capital-constrained economic climate, operating cash flows are strong, and surpluses remain deep.

Continue reading…

Peter Zaffino, President & CEO
Contact

While hurricanes spun through the Gulf of Mexico last month, a larger catastrophe ripped through New York, London, Shanghai, and every other major financial center in the world. Tropical Storm Credit Crisis (which started as Tropical Depression Subprime) intensified quickly and became a Financial Catastrophe that destroyed vast amounts of shareholder wealth.

Continue reading…

Nick Frankland, CEO of European Operations
Contact

The (re)insurance market is fraught with uncertainty. As the next renewal looms large, buyers and sellers are attempting to find common ground for risk-transfer pricing, particularly in the wake of a high-frequency hurricane season and a severe financial catastrophe with implications for both sides of carrier balance sheets. While it is too early to tell if reinsurance rates are turning, it is clear that continued substantial declines are unlikely.

Continue reading…

David Lewin, Head of International Casualty
Contact

Casualty risk is inherently complex. Few insurers and reinsurers manage the accumulation risk in their casualty portfolios. The right tools simply have not been available to identify and analyze this unique peril. Innovation is catching up with the dangers that carriers face, though. New solutions are making the prospect of a casualty catastrophe—and the estimation of realistic disaster scenario costs—a bit less daunting.

Continue reading…

Emil Metropoulos, Senior Vice President
Contact

Danger routinely enters product supply chains. An error at a plant or even a flawed product design could lead to extensive economic damage. While the direct cost of these events comes to mind first, few grasp the full extent of product liability insurance exposure. The integrated business relationships required to bring a product to market mean that one event could trigger a “casualty catastrophe” that sweeps up component manufacturers and distributors – and their insurers.

Casualty Cat, a new model developed jointly by Guy Carpenter and Arium, Ltd., seeks to identify the hidden product liability accumulations in a carrier’s portfolio and delivers the insights needed for informed action.

Continue reading…

Christopher Klein, Global Head of Business Intelligence
Contact

The ongoing financial catastrophe is already shaping the market’s perception of the next reinsurance renewal. A unique confluence of factors has complicated the annual ritual of anticipating the direction of reinsurance rates. Though a number of factors have coalesced to prevent the continued rapid decline in risk-transfer pricing that characterized 2008, pricing on average at January 1, 2009 renewals is likely to remain within a narrow range of expiring rates. Nonetheless, the global credit crisis is far from over. Conditions are changing daily. New financial developments—or a mega-catastrophe—could change market conditions substantially and with little lead time.

Continue reading…

The world’s 10 largest reinsurers have been hit hard by the financial catastrophe. At the beginning of 2008, they held a combined USD68.4 billion in equities. If the value of these assets fell by 30 percent—the rate at which the broader equity market declined—their holdings would lose USD21 billion in value. This translates to an aggregate surplus of USD73 billion (from USD94 billion at the beginning of the year). Yet, the premium-to-surplus ratio is slightly above 1:1, indicating that the industry’s stability is not in jeopardy.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.

An analysis of primary insurer cash flow indicates that primary insurers are well-prepared to withstand the effects of the global financial catastrophe. For primary insurers, cash peaked at USD90 billion in 2004, and can be expected to exceed USD50 billion in 2008. A lack of cash, it seems, will not be a problem in the near future.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.