Archive for January, 2010



January 29th, 2010

Week’s Top Stories: Jan 23 - 29, 2010

Posted at 3:19 PM ET

Solvency II - Gearing up for tougher Capital Requirements:  The development of Solvency II continues to be one of the most significant regulatory developments for the insurance industry applicable to both primary carriers and reinsurers. European insurers are starting to focus now on the risk-sensitive regime they will face in 2012, especially on the impact of the risk-based quantitative requirements for measuring financial positions and capital adequacy.

Read the article >>

Rates Retreat as Capital Rebounds: Global Reinsurance Renewals at January 1, 2010:  Reinsurance rates for most lines of business decreased at the January 1, 2010 renewal. The Guy Carpenter World Catastrophe Rate on Line (ROL) Index decreased by 6 percent in response to a swift and substantial recovery in the capitalization of the reinsurance sector. The combination of the rally in investment markets, much reduced catastrophe loss activity and recessionary effects on demand resulted in an excess of supply and increased competition. This was reflected in a slow renewal in which many contracts closed very late in the season as buyers sought to gain maximum advantage. The overall movements in pricing have also occurred against a complicated background of exposure adjustments, model revisions, program changes and other market noise.

Read the article >>

Ratings outlook stable:  Rating activity by Standard & Poor’s and A.M. Best remained low in 2009 as reinsurers rebounded from 2008 losses and pulled in strong results. Two of the four downgrades of leading global reinsurance groups during the year, Swiss Re and Transatlantic Re, were directly related to the prior year’s difficulties. The other two downgrades were reportedly driven by acquisition (IPCRe) and profitability issues (Everest Re).

Read the article >>

Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance EffectivenessPrior 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.

Read the article >>

Financial Stability Considerations Drive Regulatory Response, Part I: Overview:   Two main themes emerged in the response to the aftermath of the recent financial crisis. Efforts to improve the transparency of accounting and reporting regimes gained ground and debate focused on how best to structure and approach regulation in order to achieve tighter control and reduce market turmoil. Through working parties, the International Association of Insurance Supervisors is tackling these issues: revision of core principles, financial stability and group supervision.

Read the article >>

Most Popular Keyword:     insurance innovations guy carpenter

And, you may have missed:

GC ForeCatTM Predicts Above-Average Hurricane Landfall Rate in Southeast Region for 2010 Hurricane Season   GC ForeCat is a product developed by Guy Carpenter in collaboration with WSI Corporation, the world’s leading provider of weather-driven business solutions, that provides pre-season hurricane landfall forecast rates for different regions in the United States. GC ForeCat revolutionises hurricane forecasting by estimating the rate of landfall for regions along the US coastline. Four different regions (Gulf, Florida, Southeast and Northeast - see Figure 1) are derived with associated likelihood of tropical cyclones making landfall in each area. Monthly updates are anticipated up to and including May.

Read the article >>

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January 28th, 2010

Financial Stability Considerations Drive Regulatory Response: Part II, Summary of Recent Developments

Posted at 10:06 AM ET

UK
In November of 2009 the Financial Services Bill 2009 added the new regulatory objective of ‘financial stability.’ The act imposes a duty on the Financial Services Authority to promote international regulation and supervision. Amendments to the existing financial services legislation apply to all ‘authorized persons” in addition to the previous application to solely the banking institutions. They also include new rules on remuneration. Collective proceedings or class actions are envisaged for financial services claims. Regulations will be introduced for authorized persons to produce a recovery and resolution plan (also known as a ‘living will’) in stressed circumstances such as failure of all or part of a business.

Germany
Given the background of the financial crisis and the criticism of traditional payment systems for top managers, the German legislative body tried to introduce a tool that would guide directors and officers’ remuneration. They introduced a compulsory deductible in the D&O cover provided by the companies for board members and members of the supervisory board. “If the company buys insurance against risks the board member will be faced with in connection with his occupational activity for the company, a deductible of min. 10 percent of the claim, max. 1.5 times of the fixed annual salary of the manager must be implemented.” However, insurers developed new insurance products to cover the compulsory deductible, potentially eliminating the impact of the new law on board members.

 
USA
A package of financial reforms comprising nine bills was passed by the U.S. House of Representatives in December of 2009 including:

 
- Financial Stability Improvement bill. Applying to large (over USD50Bn in assets) systemically risky firms, the bill is designed to prevent a repeat of the 2008-2010 financial crisis. Aimed principally at banks, it will present a radical change for large insurance companies.

 
- Federal Insurance Office (Kanjorski) bill. The proposed federal office of insurance would sit within the U.S. Treasury Department. Its goal is to improve government expertise and monitor all aspects of the insurance industry including systemic risks. However critics warned it could become a data collection monster, duplicating the role of state supervisors, and interpose between international agreements and state solvency laws. Industry trade associations contend that a single point of government liaison for the U.S. insurance industry internationally could be a positive feature.

 
- Restoring American Financial Stability (Dodd) bill. Although a far-reaching piece of legislation that would also create an office of national insurance within the U.S. Treasury, this would be mainly an advisory body with power to issue subpoenas. It incorporates the idea of merging the federal oversight of the banking system from four government agencies into one new agency. However this bill would not allow federal regulation to pre-empt state laws.

 
- Proposed Consumer Financial Protection Agency. While general insurance is not included in the remit of the new agency there are specific references to credit, title and mortgage insurance.

 

Bermuda
A Capital Solvency Requirement model is being implemented, although it may be substituted by a suitable model maintained by the regulated entity. Increased monitoring and transparency for Class 4 and Class 3B insurers is under way with the goal of obtaining mutual recognition with regulators in other jurisdictions. During the first half of 2009, some 24 new insurance entities were established in Bermuda and a new class of insurer, the SPI, was introduced.

bermudian-insurer-class-big-cht1

Japan
The Financial Services Agency decided to allow domestic companies to use International Financial Reporting Standards, beginning in March, 2010. It also has ended the option for some companies to submit consolidated financial statements according to US accounting rules. The decision on adoption of International Financial Reporting Standards as mandatory for Japanese companies is scheduled for 2012. However, a move to bring international standards closer to the US-style ‘full fair value’ system could jeopardize the decision to adopt these standards in Japan.

Australia
The Australian Prudential Regulatory Authority has proposed financial reporting changes that would align nonlife regulatory reporting with prevailing accounting standards to simplify the regulatory process. Following industry comment and a Quantitative Impact Study, a proposal is anticipated in February 2010, to be finalized by July, with prudential and reporting standards based on statutory accounts, rather than on annual returns. Advantages to the regulator will include a more detailed view of profitability and performance with an unchanged capital framework.

Takaful - Islamic Insurance
The takaful insurance market has grown at approximately twice the rate of conventional insurance in Muslim countries. However, there has been a push-back from sharia scholars who opine that recent financial innovations are bending key religious precepts. For example, some so-called “Islamic bonds” are blatantly imitating conventional interest-paying bonds, which are banned from sharia-compliant practices. Although South East Asian scholars are regarded as more liberal than their Middle East peers, the debate between different factions within regions has led to calls for more regulation and international standardization of sharia-compliant products. One regulator, Bank Negara Malaysia, has commenced public consultation on a concept paper “Guidelines on the Takaful Operational Framework.” However, few territorially specific industry boards command global acceptance.

Click here to read Part I, Overview

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Statements concerning accounting, legal, regulatory or tax matters should be understood to be general observations based solely on the author’s experience in the reinsurance industry, and may not be relied upon as accounting, legal, regulatory or tax advice which he is not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

 

January 27th, 2010

Financial Stability Considerations Drive Regulatory Response, Part I: Overview

Posted at 10:00 AM ET

Two main themes emerged in the response to the aftermath of the recent financial crisis. Efforts to improve the transparency of accounting and reporting regimes gained ground and debate focused on how best to structure and approach regulation in order to achieve tighter control and reduce market turmoil. Through working parties, the International Association of Insurance Supervisors is tackling these issues: revision of core principles, financial stability and group supervision.

Continue reading…

January 26th, 2010

Ratings outlook stable

Posted at 10:00 AM ET

Rating activity by Standard & Poor’s and A.M. Best remained low in 2009 as reinsurers rebounded from 2008 losses and pulled in strong results. Two of the four downgrades of leading global reinsurance groups during the year, Swiss Re and Transatlantic Re, were directly related to the prior year’s difficulties. The other two downgrades were reportedly driven by acquisition (IPCRe) and profitability issues (Everest Re).

Continue reading…

January 25th, 2010

Solvency II – Gearing up for tougher Capital Requirements

Posted at 10:00 AM ET

The development of Solvency II continues to be one of the most significant regulatory developments for the insurance industry applicable to both primary carriers and reinsurers. European insurers are starting to focus now on the risk-sensitive regime they will face in 2012, especially on the impact of the risk-based quantitative requirements for measuring financial positions and capital adequacy.

Continue reading…

January 22nd, 2010

Week’s Top Stories: Jan 16 - 22, 2010

Posted at 3:48 PM ET

Rates Retreat as Capital Rebounds:  Global Reinsurance Renewals at January 1, 2010:  Reinsurance rates for most lines of business decreased at the January 1, 2010 renewal. The Guy Carpenter World Catastrophe Rate on Line (ROL) Index decreased by 6 percent in response to a swift and substantial recovery in the capitalization of the reinsurance sector. The combination of the rally in investment markets, much reduced catastrophe loss activity and recessionary effects on demand resulted in an excess of supply and increased competition. This was reflected in a slow renewal in which many contracts closed very late in the season as buyers sought to gain maximum advantage. The overall movements in pricing have also occurred against a complicated background of exposure adjustments, model revisions, program changes and other market noise.

Read the article >>

Wide Range of Rate Changes at German Renewal:  In an environment that was highly competitive, Germany experienced a wide range of average rate changes across lines, from a decline of 5 percent to an increase of 10 percent, with limited capacity in D&O lines pushing rates in those lines up an average of 15 percent. The market overall gained capacity from new and existing reinsurers while retention levels remained stable.

Read the article >>

GC ForeCatTM Predicts Above-Average Hurricane Landfall Rate in Southeast Region for 2010 Hurricane Season:  GC ForeCat is a product developed by Guy Carpenter in collaboration with WSI Corporation, the world’s leading provider of weather-driven business solutions, that provides pre-season hurricane landfall forecast rates for different regions in the United States. GC ForeCat revolutionises hurricane forecasting by estimating the rate of landfall for regions along the US coastline. Four different regions (Gulf, Florida, Southeast and Northeast - see Figure 1) are derived with associated likelihood of tropical cyclones making landfall in each area. Monthly updates are anticipated up to and including May.

Read the article >>

(Re)Insurance Innovation:  Committing to the Leading Edge, Part V:  The Elements of Innovation:  Innovation requires a dedication to research, creativity, resources and foresight. Above all, however, it takes courage to accept the risks - to strive for success rather than cowering in fear of failure.  In fact, the best companies learn from occasional mistakes. Learning from failure during the development stages of innovation strengthens a company’s capabilities. It creates an understanding of the issue at hand farther reaching and more in depth than that of the competitors which attach to the idea after it has been accepted as a standard. This understanding fosters a more effective use of that innovation as well as a platform from which to generate new ideas with the practical experience of what works and what does not.

Read the article >>

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.

Read the article >>

Most Popular Keywordgc forecat

And, you may have missed:

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.1 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.

Read the article >>

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.

January 21st, 2010

(Re)Insurance Innovation: Committing to the Leading Edge: Link Index

Posted at 3:01 PM ET

(Re)Insurance Innovation: Committing to the Leading Edge, Part I: Overview >>

(Re)Insurance Innovation: Committing to the Leading Edge, Part II: The Challenge of Innovation >>

(Re)Insurance Innovation: Committing to the Leading Edge, Part III: Get in the Game Early >>

(Re)Insurance Innovation: Committing to the Leading Edge, Part IV: Staying Out Front >>

(Re)Insurance Innovation: Committing to the Leading Edge, Part V: The Elements of Innovation >>

Click here to learn more about reinsurance innovation >>

January 20th, 2010

GC ForeCat™ Predicts Above-Average Hurricane Landfall Rate in Southeast Region for 2010 Hurricane Season

Posted at 12:49 PM ET

GC ForeCat is a product developed by Guy Carpenter in collaboration with WSI Corporation, the world’s leading provider of weather-driven business solutions, that provides pre-season hurricane landfall forecast rates for different regions in the United States. GC ForeCat revolutionises hurricane forecasting by estimating the rate of landfall for regions along the US coastline. Four different regions (Gulf, Florida, Southeast and Northeast - see Figure 1) are derived with associated likelihood of tropical cyclones making landfall in each area. Monthly updates are anticipated up to and including May.

Continue reading…

January 20th, 2010

Directors and Officers Liability Insurance Under New German Rules – The Right Way to Tackle the Problem?

Posted at 12:00 PM ET

wolfram-schultz-small2Wolfram Schultz, Senior Vice President
Contact

The Act on the Appropriateness of Management Board Compensation (VorstAG) came into force in Germany on 5 August 2009. The Act will impact new D&O insurance contracts and existing contracts after 30 June 2010. The Act is causing uncertainty through the introduction of a compulsory deductible for directors and officers.

Continue reading…

January 19th, 2010

Wide Range of Rate Changes at German Renewal

Posted at 12:00 PM ET

In an environment that was highly competitive, Germany experienced a wide range of average rate changes across lines, from a decline of 5 percent to an increase of 10 percent, with limited capacity in D&O lines pushing rates in those lines up an average of 15 percent. The market overall gained capacity from new and existing reinsurers while retention levels remained stable. Almost all lines of business experienced average loss activity in 2009 with an upwards tendency in the second half of the year. It is not yet clear if an increase in loss frequency in some property/casualty lines in the second half of 2009 may have been caused by the economic crisis. Final Solvency II capital requirements and increased consolidation among primary insurers may further influence retention levels and amounts of ceded premiums. The London market continued last year’s trend of greater participation in the German market.

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