July 24th, 2009

Week’s Top Stories: July 18 - July 24, 2009

Posted at 1:00 AM ET

Enhance Capital Productivity When a Hurricane Is Coming: September 2008 brought two major shocks to the global (re)insurance industry. The financial catastrophe captured the headlines, ultimately depleting reinsurer capital by 18 percent, as measured by the Guy Carpenter Global Reinsurance Composite. At the same time, Hurricane Ike pushed through the Gulf of Mexico eventually costing carriers USD11.5 billion.

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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.

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U.S. D&O Reinsurance Renewals at July 1, 2009: Consistent with the overall trend of the past six months, the July 1, 2009 directors and officers (D&O) reinsurance renewal cycle in the United States was one characterized by increased concerns about how an economy that is continuing to sputter will impact commercial D&O profitability going forward and a lack of reinsurance capacity.

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U.S. Surety Renewal at July 1, 2009: Reinsurance renewals for surety cedents generally remained flat (with some slight increases) through the July 1, 2009 renewal in the United States. The price increases that did occur were driven by program size, changes in net exposure and loss experience — larger programs that needed more capacity tended to sustain the greatest increases. Smaller programs with favorable loss histories, on the other hand, generally saw reinsurance rates remain flat.

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Mixed Bag: There’s no single answer to the question of capital availability in the global life, accident, and health (LA&H) market. Reinsurers are responding to the returns possible for specific risks, which is driving their capital allocation decisions. Meanwhile, cedents are uniformly focused on managing the cost to transfer risk. As these factors converge on reinsurance rates — along with concerns about investment asset performance, geography, and the underwriting profitability of other lines of business — the result is a price stalemate caused by competing pressures of comparable strength. Without an unexpected market development, the norm is likely to persist.

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Beware the Benign Hurricane Forecast: The 2009 hurricane season is expected to be moderate, but that’s no reason to let your defenses down. In setting your expectations for the coming months, it pays to consider severity as well as frequency. Most major forecasts address the number of storms anticipated — but they don’t account for severity. A mild Atlantic hurricane season could still trigger outsized insured losses, and an exposed (re)insurer could feel the shocks on its bottom line, return on equity (ROE) ratio, and even market capitalization.

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And, you may have missed …

GCACIC Publishes Update on 2009 Tropical Cyclone Conditions: The Guy Carpenter Asia-Pacific Climate Impact Centre, a joint initiative of Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist, and the City University of Hong Kong, announced the publication of an update on 2009 tropical cyclone (TC) activity in the West North Pacific (WNP) region, based on new information for April and May 2009.According to the briefing, oceanic and atmospheric conditions in the Pacific remain in neutral status, with five out of the seven primary forecasts suggesting the possible development of an El Niño event.

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