1. Cats and Credit Push Prices Up: Reinsurance rate increases were moderate on average at the January 1, 2009 renewal. The Guy Carpenter World Rate on Line (ROL) Index rose 8 percent, in response to the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record.
2. 2008 Catastrophe Update: A record-setting Atlantic hurricane season and above-average manmade catastrophe losses put 2008 among the costliest years on record. While the economic downturn dominated the headlines throughout the year, lurking in the shadows was one of the most active hurricane seasons on record.
3. Cat Bonds Persevere in Tumultuous Market: A slow issuance year in 2008 masks a story of resilience and risk management flexibility. After a record-setting year in 2007, catastrophe bond issuances fell 62 percent by issuance volume and 52 percent by transaction count last year.*
4. Reinsurer Financial and Cat Losses High, Bermuda Hit Most: A tough year for reinsurers is coming to a close. The worldwide financial catastrophe has impaired investment assets and put downward pressure on profits. At the same time, combined ratios were sent higher by an above-average year for catastrophe losses, especially as a result of Hurricane Ike.
5. Ratings Outlook Stable for 2009: Rating activity was remarkably low in 2008, despite the forcible removal of several billion dollars of capital from the global reinsurance industry. The confluence of one of the costliest insured catastrophe loss years to date and the ongoing financial catastrophe have had a material impact on the earnings and capital position of nearly every major player.
6. Reinsurance Pricing and the Changing Cost of Capital: Despite the ambiguity pervading financial and reinsurance markets, it is clear that systemic risk has increased. Unprecedented chaos in financial markets left investors more risk-averse than they were at the end of the summer.
7. 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.
8. A Short, Defining Year for Cat Bonds: The catastrophe bond year ended back in July, and two quarters of virtual silence have signaled an abrupt change in the market. After 2006 and 2007, we had become accustomed to record-setting issuance years.
9. International Casualty Update: January 1, 2009 Renewal: Casualty treaty reinsurance pricing outside the United States and UK was unchanged in most areas, though there were pockets where prices rose - despite the shrinking of many cedents’ premium incomes.
10. Book Value Update: Renewals Impact: The impairment of insurance investment assets, as a result of the financial catastrophe, has pushed capital lower. As of year-end 2008, the GC Global Composite of 141 carriers had lost an estimated 15 percent of implied book value.
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* Securities or investments, as applicable, are offered in the United States through GC Securities, which is a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Advice on securities or investments, as applicable, are offered in the European Union is provided through GC Securities, a division of MMC Securities (Europe) Ltd., authorized and regulated in the UK by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., GC Securities, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.