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.

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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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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).

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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.

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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.

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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.

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