July 10th, 2009

Week’s Top Stories: July 4 - July 10, 2009

Posted at 11:59 AM ET

Get the Most Out of Cat Models, Part I: Manage the Unknown: Insurer and reinsurer reliance on catastrophe models has become part of the fabric of risk management. Though they provide guidance rather than clear courses of action, these tools help quantify risk and deploy their capital as effectively as possible. But, they aren’t perfect. Every catastrophe model has specific strengths and weaknesses, which is why risk-bearers tend to use several models to evaluate exposures, with the final decisions on whether to cover a particular risk shaped by loss history, company objectives and risk manager judgment. As a result, models are crucial to (re)insurer success … as long as they are used properly.

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Prop-Cat Reinsurance Rate Increases Steady at July 1 Renewal: Property-catastrophe reinsurance rate increases were steady at the July 1, 2009 renewal. In the United States and Latin America, capacity was sufficient to meet demand. U.S. property-catastrophe reinsurance rates increased 15 percent year-over-year, in line with the trend from January to June. In Latin America, preliminary data varied by country, but upward pressure on pricing was offset by supply and local market competition to keep reinsurance rate increases contained. For the marine sector, rates were up 5 percent to 10 percent, based mostly on loss history and catastrophe exposure. With four major renewal periods covered this year, a sense of calm has emerged. The general reinsurance market is tepid, with a few hotspots based on region- or program-specific factors.

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7/1 European Casualty Renewals: The July renewal does not affect a large number of cedents in Europe, but the programs that did renew suggest a continuation of the year’s broader themes. Hotspots across the market at the January renewal have persisted as expected, though the recent renewal was not robust enough to support forecasts for January 1, 2010.

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Get the Most Out of Cat Models, Part II: Lessons from Ike: It has taken many months for the (re)insurance industry to digest the effects of Hurricane Ike and its impact continues. One of the largest natural catastrophes in history in terms of insured losses, the Gulf of Mexico storm was in part overshadowed by the simultaneous financial catastrophe that struck business centers around the world. The implications of both emerged at the same time, as risk managers sought to keep pace with damage to both the asset and liability sides of the balance sheet.

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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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And, you may have missed …

7/1 Asia-Pacific Casualty Renewals: As with Continental Europe, July 1 is not a particularly heavy casualty reinsurance renewal in the Asia-Pacific region, with few programs renewing. For programs that did renew, rates were up modestly, on average, in Asia, with increases ranging from 5 percent to 10 percent. Higher prices were concentrated on accounts with loss histories that were worse than average.

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