October 23rd, 2009

Week’s Top Stories: Oct 17 - 23, 2009

Posted at 1:00 AM ET

Casualty Clash and Casualty Catastrophe Risks, Part I: Clashing and Catatrophic Casualty Events: Remoteness has been used to downplay the threat, causing carriers to overlook a more immediate, though less menacing, concern. A substantial loss may not imperil company operations, but it could lead to an unexpected earnings hit, the effects of which would be magnified for shareholders. Unanticipated large losses typically result in a disproportionate impact on market capitalization. Casualty clash and catastrophe protection, consequently, can be a vital tool in managing overall financial performance.

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Cat Bond Update: Third Quarter 2009*: The third quarter is traditionally quiet for the catastrophe bond market, and 2009 was no exception. Two transactions were closed, resulting in USD412 million in new risk capital. Nonetheless, risk capital issued was up by a third relative to the same quarter last year, as both catastrophe bonds issued were upsized considerably. The consensus estimate for the entire year remains USD3 billion to USD4 billion, implying a strong fourth quarter for primary issuance.

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Typhoon Lupit: Typhoon Lupit is located approximately 690 miles (1,110 kilometers) northeast of Manila in the Philippines and is tracking west-northwest, according to the Joint Typhoon Warning Center (JTWC). Lupit is currently a Category 2 typhoon and is moving at 9 mph (15 kmph) with sustained winds of around 110 mph (175 kmph).

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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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Update: Standard & Poor’s Capital Model: Standard & Poor’s (S&P) is now performing additional analysis on loss reserves using a product called “Rescue,” which is developed by an outside vendor. Rescue obtains triangles from the company being examined instead of using Schedule P data. This approach offers data for more years for long-tail lines of business.

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Most Popular Keyword: catastrophe bonds

And, you may have missed …

Continental European Legal Update: Conclusion: This latest issue of our legal update continues to expand our coverage of key legislative and judicial developments in Continental Europe. A variety of developments in insurance legislation are charted in this latest issue, from the introduction of mandatory self-insured deductibles in D&O liability insurance in Germany to the introduction of rights of direct access against liability insurers in Switzerland.

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* 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.

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