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.

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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.

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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.

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(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.

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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:

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.

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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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