September 25th, 2009

Week’s Top Stories: Sep 19 - 25, 2009

Posted at 1:00 AM ET

World Catastrophe Reinsurance Market 2009: A Changing Property-Catastrophe Reinsurance Industry: This year’s 8 percent Guy Carpenter World ROL Index increase differs profoundly from the 65 percent surge that followed Hurricane Andrew and the 24 percent hike following the terror attacks of September 11, 2001 in the United States. Even after losing 18 percent of its aggregate capital following the 2008 financial catastrophe, reinsurers were unable to push for the high rates that some expected. The evolution of the reinsurance industry over the past two decades suggests that carriers have become much more adept at managing risk and capital, making it easier to absorb shock losses and manage the cost to transfer risk.

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Casualty Specialty Update: Inflation: Implications for Long-Tail (Re)Insurance: Monetary inflation may not be a concern now, but many worry about the medium-term prospects. In the short run, a worldwide recession and depressed growth levels have kept the risk of inflation contained. But, “quantitative easing” — the pumping of money by governments into the financial system — could set the stage for a spike in inflation a few years from now. These developments could be exacerbated by non-monetary “superimposed” inflationary factors, which could make it more challenging for long-tail (re)insurers to write profitable business.

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World Catastrophe Reinsurance Market 2009: The Reinsurance Market: From Turbulence to Growth: The reinsurance industry has had a turbulent year, but it has survived the greatest financial catastrophe since the Great Depression remarkably well. Balance sheets have stabilized and have even begun to improve this year. Despite an average loss of capital of 18 percent, a string of reinsurer failures — feared by many — never materialized. Strong capital positions enabled reinsurers to absorb the financial and natural shocks of 2008 and continue to bear risk without interruption.

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Indexation Clauses in Liability Reinsurance Treaties: A Comparison Across Europe: The Indexation Clause – otherwise referred to as the Stability Clause, Inflation Clause, or Severe Inflation Clause (SIC) – is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss (XL) reinsurance treaty over the duration of the claims payout pattern. The clause is only relevant to losses that are of a long-tail nature (i.e., that take a long time to become paid) and is commonly found in the terms and conditions of Motor Liability (MTPL), General Liability (GTPL), and Professional Liability TPL XL reinsurance contracts of European cedants.

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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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And, you may have missed …

GC Podcast 09 — Inflation (David Lewin): David Lewin, Head of the European Casualty Specialty, discusses the impact of monetary and non-monetary inflation in this new GC Capital Ideas podcast. Click the audio player below to listen to the interview, or download the interview in a file that will work with your iPod.

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