1. Lloyd’s 2008 Results — Resilience in a Tough Market: Lloyd’s of London (”Lloyd’s”) competitive position strengthened in 2008, largely because of effective risk management oversight and relatively conservative investment allocation. The capital structure has proved resilient in the face of the worldwide financial catastrophe and financial strength ratings remain strong and stable. As a result, Lloyd’s is well-positioned to benefit from current market dislocation.
2. Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of Enterprise Risk Management (ERM) to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.
3. Casualty Cat Series: Casualty catastrophes have become increasingly frequent and severe over the past decade, exposing (re)insurers to much more risk than they may realize. One root cause can trigger a chain reaction that can bleed balance sheets and even imperil solvency. Until recently, casualty carriers had little choice but to accept this risk. The maturation of Enterprise Risk Management (ERM) practice and the development of new casualty-specific catastrophe models, though, signal a change.
4. 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. Investor marketing for a fourth catastrophe bond issuance began in the first quarter but is expected close in the early part of the second quarter. Issuance levels are consistent with the first quarter of 2008, a year that seemed likely to be the second-busiest in the history of the catastrophe bond market until the financial crisis accelerated in the fourth quarter of last year.*
5. 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. From a quantitative perspective, the results of the Quantitative Impact Study 4 (QIS 4) were published by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) in November 2008. From a political perspective, the group support concept was abandoned to avoid further jeopardizing the targeted implementation by 2012.
6. Global Reinsurers Shareholders’ Funds up 4.9%: Guy Carpenter Global Reinsurance Composite aggregate shareholders’ funds are up 4.9 percent for the first quarter of 2009 — relative to the full-year results for 2008, with nearly two-thirds of the companies in the composite reporting. All companies but one saw increases this quarter, with a median gain of 2.1 percent.
7. Workers Comp Rate Trends Call for Discipline and Reveal Opportunities: January 1, 2009 reinsurance renewal rates for workers compensation stabilized after steady annual decreases since 2002. While this certainly compares favorably with other lines of reinsurance, key underlying components of workers compensation insurance are not cooperating. Medical expenses constitute more than 50 percent of overall workers compensation costs and are increasing at nearly twice the pure medical inflation index. Add the effects of the financial market turmoil, increased unemployment, mixed rate actions within the various jurisdictions, and reform push-back, and we are faced with a new level of uncertainty for workers compensation results. Efficiently priced working layer reinsurance — which has typically been the hedge against frequency losses — is not as readily available as it once was, and insurers will have to find new ways to manage their capital effectively.
8. H1N1 Swine Flu Emerging Slowly: The recent H1N1 swine flu outbreak has garnered considerable attention, but evidence that the outbreak will become a statistically significant pandemic event remains sparse. As of May 6, 2009, there have been 1,516 cases confirmed globally by the World Health Organization (WHO), with 30 fatalities. Consequently, H1N1 has shown a lethality rate of only 1.98 percent. While any loss of life is tragic, the implications of swine flu have not reached pandemic proportions.
9. Climate Change Series: Climate change is happening. Or is it? It is caused by human action. Or is it? The arguments are bantered back and forth in a crossfire of disagreement over an issue that holds political, social, and emotional significance around the world. For every position there are sympathetic experts willing to present supporting evidence, which, in turn, is inevitably skewered by those holding a contrary view.
10. Update: U.S. Landfall Rates for 2009 Hurricane Season: The Gulf of Mexico region remains the most vulnerable to tropical cyclones making landfall in the United States this year, according to the fourth 2009 GC ForeCatTM update. With a mean forecast landfall of 0.65, 2009 is only slightly below the 1951-to-2007 average of 0.66. Florida, the Southeast, and the Northeast have below-average forecasts for the 2009 hurricane season, as well.
Top Tag: World Rate on Line (ROL) Index
* 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.