Capital Management: A Renewed Priority: The continuing meltdown in global financial markets has underscored the importance of prudent capital management. As the financial catastrophe is still unfolding, its full implications remain ambiguous.
Capital Management: Quantify Capital Risks: The determination of a target capitalization must occur within the context of risk measurement and analysis. Enterprise Risk Management (ERM) practices seek to bring discipline to the risk and capital management process, with every decision made based on a single risk’s marginal implications to the firm as a whole.
Known Unknowns: The “black swan” is trumpeting! Last year, we saw the first-hand effects of random, unforeseen, and massive events. Catastrophe models — the tools we use to forecast disaster and protect capital — were shown to be quite fallible, leaving balance sheets exposed to more risk than carriers realized. Yet, maybe we’ve been a bit hasty in meting out blame.
Ike Update: Revised Shareholders’ Funds Impact: Changes to net loss estimates for Hurricanes Ike and Gustav continue to be announced. Last week, Liberty Mutual, Amlin, and Omega issued updates. Liberty Mutual’s increase is 25 percent relative to initial estimates, with Amlin’s up 6 percent and Omega’s up 21 percent. Munich Re reported the largest revision of the week, an upward change of 44 percent.
Shelf Offerings 100% of 2008 Issuances: Shelf offerings have become increasingly common in the catastrophe bond market. First introduced in 2002, this concept of creating a platform for multiple note issuances evolved from the medium-term note programs developed for corporate debt issuers in the capital markets.
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