November 6th, 2009

Week’s Top Stories: Oct 31 - Nov 6, 2009

Posted at 1:00 AM ET

Impact of Earnings Volatility on Price/Book Ratios: The link between a company’s earnings and its share price is intuitive and well documented. Equally logical, although far less studied, is the correlation between the volatility of earnings and share price. The favorable impact of stable earnings on market valuation is intuitive considering market capitalization represents a view of future discounted cash flows and unexpected earnings volatility reduces the predictability of those cash flows.

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Explosions and Fire at Oil Storage Depot, Jaipur, India: A massive fire broke out on October 29, 2009 at an oil storage depot in the western Indian state of Rajasthan, killing at least six people and injuring 150 others. Two huge explosions were heard before the fire ignited and rapidly spread. Reports said the blaze ignited most of the depot, including every oil storage unit. The fire broke out around 19:30 local time (14:00 UTC) at the Jaipur storage depot run by Indian Oil Corporation (IOC) and was visible from over 25 kilometers (16 miles) away, according to reports. Company officials said the depot covers an area of several square kilometers and the oil tanks store gasoline, diesel and kerosene fuel for several state-owned oil companies. Reports said the depot has a 100,000 kiloliter capacity.

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Cat Risk in a Solvency II Environment: The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) refined the evaluation of non-life catastrophe risks under Solvency II in its Consultation Paper 48 “SCR Standard Formula: Non-Life Underwriting Risk” issued in July 2009.

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Finding (Re)Insurance Innovators: It seems that everybody claims to be on the leading edge when it comes to the best tools and latest ideas for the (re)insurance industry. Capital models, dynamic financial analysis and Enterprise Risk Management (ERM) practices abound. So, how can you sift through all these toolboxes to find the most valuable, genuine and applicable instruments of innovation?

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(Re)Insurers and Capital Markets: Viable and Reliable*: A year ago, (re)insurers’ access to capital markets was in doubt. A worldwide financial crisis decimated balance sheets, sent equity values tumbling and caused credit markets to come to a standstill. Today, however, the situation has changed completely. Catastrophe bond issuances have resumed, and the mergers and acquisitions (M&A) market is gaining momentum. (Re)insurers are turning to capital markets to address a wide range of strategic and tactical needs. It is clear that this source of capital remains both viable and reliable.

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Most Popular Keyword: H1N1 (swine flu)

And, you may have missed …

ERM Advanced by Financial Crisis: As expected, insurers have continued to accelerate their development of Enterprise Risk Management (ERM) practices following last year’s financial crisis. The impact to both sides of the balance sheet emphasized the importance of tracking every risk a carrier faces and protecting capital from a wide range of threats. As ERM practices evolve, clear definitions and terminology become critical. A common language and framework will facilitate process and technical innovation, improving the transfer of practices across companies and simplifying the disclosure process — all of which will lead to more accurate risk evaluation.

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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, Inc. 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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