1. Rates up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal: Reinsurance rates continued to increase for the U.S. property-catastrophe reinsurance market at the April 1, 2009 renewal, extending the trend that began at the beginning of the year. National programs were up 10 percent to 14 percent on a risk-adjusted basis, with those in the Northeast seeing 6 percent to 8 percent increases. This compares to a reinsurance rate increase of 11 percent on average at the January 1, 2009 renewal.
2. Cat Bond Update: First Quarter 2009: A strong first quarter has demonstrated that catastrophe bonds are still important tools for risk managers, treasurers, and CFOs.* After five months of silence since the last issuance in mid-August 2008, three bonds closed in the first quarter of 2009 bringing USD575 million in fresh capital and confirmation that these instruments are still attractive investments, despite the ongoing the global financial catastrophe.
3. Where Are We on Solvency II?: Solvency II will require insurers and reinsurers domiciled in the European Economic Area (EEA) to assess their regulatory capital requirements within a forward-looking risk sensitive framework. Solvency II has reached a decisive point in its development, as the focus moves to how the directive will be implemented in practice and how it will shape the competitive landscape of the insurance industry.
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5. Cat Risk in a Solvency II Environment: Many approaches exist for use in assessing catastrophe risks. Under Quantitative Impact Study 4 (QIS4), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) provided a list of those that can be used for Solvency II compliance and, in the interim, managing risk and capital effectively. The full stochastic modeling of catastrophe risk using an internal model, such as Guy Carpenter’s G-Cat® tools and MetaRisk®, provides the most information.
6. USD6.1bn Loss for Global Reinsurance Composite: With data for 16 of the 20 companies in the Guy Carpenter Global Reinsurance Composite available, an aggregate loss of USD6.1 billion has emerged. This stands in stark contrast to 2007’s aggregate net income of USD18.4 billion.
7. April Renewals Follow January Precedent, Despite Industry Capital Conditions: Life and personal accident (PA) reinsurance renewals sustained significant rate reductions at the April 1, 2009 renewal — in some cases as low as 10 percent. Average rate on line (ROL) was down 3.8 percent, excluding programs with large rate changes for reasons not directly related to market conditions.
8. Bermuda Capital Constrained but Sufficient: Like the rest of the world, the Guy Carpenter Bermuda Composite has suffered a drastic financial change from the share buybacks and dividend payments that were common a year ago. Excess capital has become merely sufficient, and the goal of a 15 percent return on equity (ROE) seems ever more distant, as the five-year rolling average for the composite fell to 8.7 percent.
9. Status of Solvency II for Life Carriers: Participation in Quantitative Impact Study 4 (QIS4) exceeded European Commission expectations for small, medium, and large companies. The results, published by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) in November, suggest that 98.8 percent of the carriers participating will meet the Minimum Capital Requirement (MCR) and 89 percent satisfied the Solvency Capital Requirement (SCR), though the ongoing financial catastrophe could cause some changes to this result.
10. Bermuda Reinsurance Composite Net Loss of USD6.6bn: The Guy Carpenter Bermuda Reinsurance Composite posted an aggregate net loss of USD6.6 billion for full-year 2008. This represents a precipitous drop from 2007’s net gain of USD8.6 billion. Again, unrealized losses were the primary source of the problem. Eight of the 18 companies in the composite would have reported net profits if not for them. The composite’s aggregate return on equity (ROE) fell to -7.9 percent.
Top Tag: catastrophe bonds
* Securities or investments, as applicable, are offered in the United States through GC Securities, 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. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., 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.