June 29th, 2009

Top 10 Stories: June 2009

Posted at 1:00 PM ET

1. Florida Renewal up 15%, Follows the Global Trend: Property-catastrophe reinsurance rates increased by 15 percent at the Florida-centric June 1, 2009 renewal — compared to a 15 percent decline a year ago. Capacity was more limited than in recent years — however, still adequate to complete renewals. Though the ultimate result was higher than the 10 percent to 14 percent change for U.S. national reinsurers at April 1, 2009, the intricacies of the Florida market render it directionally consistent with the overall rate trend for this year. Constraints on capital have pushed risk-transfer pricing higher, but shortages were not so severe that rates spiked as they did in 2006.

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2. Global Reinsurance Composite Net Income, Combined Ratio Improve: The Guy Carpenter Global Reinsurance Composite’s net loss narrowed from the first quarter of 2008 to that of 2009. This year, the group showed an aggregate net loss of USD127 million — an improvement of 86 percent. Declines in unrealized losses and better non-life underwriting results are the primary drivers.

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3. Global Terror Update: 2009 Global Terror Update summarizes terror insurance market developments in 34 countries across six continents. According to the briefing, developments on a country-by-country basis are being shaped largely by events, including new or evolving threats and local developments in the insurance and reinsurance markets. The update also addresses the impact of terror insurance on the aviation market and looks at recent developments in terror modeling.

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4. RISK-i Update: Air France Plane Missing over Atlantic Ocean: An Air France plane carrying 228 passengers and crew on an international flight has vanished over the Atlantic Ocean after hitting heavy turbulence, according to airline officials. Reports said the aircraft was carrying 216 passengers and 12 crew members, including three pilots. The Airbus 330-200, operated by Air France, was flying direct from Rio de Janeiro in Brazil to Paris in France when it went missing while flying through “a thunderous zone with strong turbulence.” Flight AF 447 left Rio de Janeiro at 19:00 local time (22:00 UTC) on May 31, 2009 and reports said the Airbus sent an automatic message at 02:14 UTC on June 1, 2009 reporting a fault in an electrical circuit, some four hours into its 11-hour flight.

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5. 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.

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6. Flooding in Central Europe: Heavy rainfall across the Central European region from June 22, 2009 to June 25, 2009 has caused severe flooding in several countries, including the Czech Republic, Austria, Poland, and Germany. The heavy rainfall is also reported to have prompted flood alerts for the Danube in the Slovak Republic and Hungary and has caused some flooding in Romania.

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7. GC ForeCat May Update: 2009 U.S. Hurricane Landfall Rates: The fifth and final 2009 GC ForeCat update was released on May 26, 2009 and is unchanged from the last update. According to the May update, the Gulf region remains most vulnerable to tropical cyclones coming shore in the United States in 2009. The rate of 0.65 for the Gulf represents the mean number of landfalling tropical cyclones in that region for the forthcoming 2009 hurricane season (compared to the 1951 to 2007 average landfall rate of 0.66). For the Southeast region, meanwhile, a forecast 0.36 mean rate of landfall has been calculated for 2009 (slightly lower than the long term average of 0.41) while the regions of Florida and the Northeast have mean landfall rates of 0.29 and 0.21, respectively.

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8. North Atlantic Tropical Cyclone Season Forecast 2009: The Colorado State University tropical storm research team has further lowered its hurricane development forecast for the 2009 North Atlantic season, and now foresees “below-average activity.” Researchers Philip Klotzbach and William Gray decreased their forecast from their April prediction and now expect 11 named tropical storms to develop in the North Atlantic basin between June 1, 2009 and November 30, 2009. Of these, five are predicted to become hurricanes and two major hurricanes with sustained winds of 111 mph or greater (Category 3 and above on the Saffir-Simpson Scale). In April, the Colorado State University predicted an average season with 12 named storms, six hurricanes and two major hurricanes.

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9. H1N1 Cases up, Lethality Down Through June 2009: The lethality of the H1N1 swine flu outbreak has declined over the past month. As of May 6, 2009, H1N1 had a lethality rate of 1.98 percent. This has fallen to 0.61 percent as of June 3, 2009.

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10. 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.

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