November 13th, 2009

Week’s Top Stories: Nov 7 - 13, 2009

Posted at 1:00 AM ET

Near-Term Capital Management: Hidden Opportunity: We’ve had a fairly quiet catastrophe year, making it easy for risk managers to slip into a false sense of comfort. But, the situation could have been much different, especially if Hurricane Bill had taken a slightly altered course. A single storm can affect the insurance industry profoundly, especially if it makes landfall where there is a high accumulation of risk. When the unexpected begins to take shape, the range of options available to risk bearers shrinks rapidly, and even the most thorough of plans can be thwarted. Any measure that can help carriers protect their capital as a storm is bearing down on its insureds can have an impact all the way to market capitalization.

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Stability Returns: At the end of 2008, the normal pre-renewal uncertainty was magnified by the effects of the most severe financial crisis in more than 70 years. Financial markets were in turmoil, and the cost of capital was rising. Yet, these pressures were counterbalanced by capital positions that remained sufficient, despite the impairment of investment assets. The outcome was relatively benign, but anxiety was endemic before the January 1, 2009 reinsurance renewal. Now, 12 months later, the marketplace is much different, indicating the remarkable recovery that has occurred in 2009.

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Reinsurer Financials Point to Savvy Capital Management: Reinsurers have enjoyed a significant recovery in 2009. Effective and disciplined capital management in previous years and good-natured weather enabled them to sit out the financial storm and build up strong cash positions. Meanwhile, the broader financial services industry is still coping with the effects of the worldwide financial crisis. Stability has returned to the reinsurance market, though it remains delicate. But, by all measures, the savvy management of capital and underwriting has been successful.

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Reinsurance Brokers: Orderly Markets and Optimized Results, Introduction: Insurers use reinsurance to lay off risk, free up capital and manage earnings, with the ultimate goal of maximizing the value of every dollar applied to risk. The flexibility afforded by the reinsurance transaction allows insurers to write more policies, enter or withdraw from markets — ultimately feeding growth in revenue, earnings and market capitalization. While it is possible for insurers to deal directly with reinsurers, many choose to use a reinsurance broker. This intermediary provides services that an insurer may not have in-house. Representing the interests of the insurer, the reinsurance broker facilitates access to capital, provides catastrophe modeling services and plays a deep advisory role on areas ranging from risk and capital management to identifying and pursuing opportunities for growth.

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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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Most Popular Keyword: innovation

And, you may have missed …

Five Ways to Find and Manage Hidden Risks: Some casualty risk accumulations stay hidden, but this doesn’t mean your exposure disappears. A single event could trigger a chain reaction of insured losses on professional and product liability covers, depleting your capital and possibly destroying shareholder value. In extreme cases, even solvency could be threatened. Using Guy Carpenter’s Casualty Cat model, developed jointly with Arium, Ltd., it’s possible to identify some of these “casualty catastrophe” risks early — before they drain your balance sheet.

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