Archive for February, 2010



February 26th, 2010

Week’s Top Stories: Feb 20, 2010 - Feb 26, 2010

Posted at 10:00 AM ET

Higher Pressure on Cat Risk Under Solvency II, Part II: (Partial) Internal Model Approach and Conclusion:   The objective of these articles is to provide, based on a review of CEIOPS’ recent papers, a summary of how non-life cat risks are likely to be quantitatively assessed under Solvency II. (Re)insurers may develop their own calculation processes within full or partial internal models to derive capital charges for catastrophe risk. The process must be calibrated to return a 99.5% confidence level over a one year period and must be fully transparent, documented and approved by the supervisors. Ideally the process enables reporting of scenarios by country, peril and line, with subsequent aggregation to final capital charge NLCAT.

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Higher Pressure on Cat Risk Under Solvency II, Part I: Standard Formula Approach: The objective of these articles is to provide, based on a review of CEIOPS‘ recent papers, a summary of how non-life cat risks are likely to be quantitatively assessed under Solvency II. (Re)insurers may quantify their individual catastrophe risk charge as part of one of three frameworks: the standard formula; a partial internal model; a full internal model.

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Umbrella & Excess Rate Renewals at Jan 1, 2010: Premium income fell for insurers primarily because the weak economy left customers with smaller businesses and reduced value exposures to insure. Even when rates were flat or slightly higher, some insurers’ premium income on specific placements declined by 10 percent or more.

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Guy Carpenter Sponsors New MicroRisk Publication: As a leader in the micro(re)insurance sector, Guy Carpenter continues to communicate the need for and the opportunities within this innovative and growing arena with its sponsorship of MicroRisk, a new quarterly publication devoted to the market for insurance products aimed at protecting low-income people. In the first issue of MicroRisk, MMC President and CEO Brian Duperreault discusses the viability of and challenges associated with microinsurance in “Big Hitters Eye Micro Opportunities.”

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Catastrophe Bond Market Continues to Improve: Despite the challenging financial conditions of late 2008 and early 2009, the catastrophe bond market continued to play a critical role for both sponsors and investors over the past 12 months. Throughout the year, as financial markets stabilized generally, catastrophe bond issuance conditions continued to improve. In 2009 USD3.4 billion of risk capital was issued through 18 transactions. In terms of risk capital, this is a 25 percent increase over 2008. After declining over the first two quarters of 2009, total catastrophe bond risk principal outstanding increased from USD12.0 billion at year-end 2008 to USD12.2 billion at year-end 2009, reflecting a particularly strong fourth quarter for issuance.

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Property Retrocession Renewals: The property retrocession market renewal customarily closes late and the 2010 season was no exception. Buyers generally prefer to wait to ensure that they have the best possible view of their own inwards portfolio exposures before proceeding to purchase. A late, speedy renewal is possible because of a number of factors including uniformity of required data; the relatively small size of the market; a quick execution period and a reduced number of buyers coming to market at this time of the year.

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February 25th, 2010

Directors and Officers Renewals - Stabilization in Pricing

Posted at 11:00 AM ET

In general, Directors & Officers (D&O) insurers continued to experience some stabilization in pricing and a normalization of exposure in both the Commercial and Financial Institutions segment. For commercial risks with attractive risk profiles, the market remained competitive with average primary rate changes ranging from flat to a decline of 8 percent. After two years of dramatic rate increases, the financial institution segment showed signs of moderation as rate increases slowed.

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February 24th, 2010

GC ForeCat™ Continues to Predict Southeast Region of United States Most Vulnerable to Landfalling Hurricanes in 2010

Posted at 11:23 AM ET

cati-pred-se-smallGC 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 on page 2) 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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February 24th, 2010

UN Climate Change Conference in Copenhagen

Posted at 10:00 AM ET

Despite below-average insured losses in 2009, several international (re)insurers believe climate change is impacting both the number and severity of weather-related events. According to Swiss Re (1) , worldwide insured natural catastrophe losses averaged USD5.1 billion per annum between 1970 and 1989, but they jumped to USD27.1 billion per annum between 1990 and 2009. Munich Re (2) has also strongly advocated the need to tackle climate change, citing a 33 percent jump in the number of weather-related catastrophes in the last few years compared to the 1980s.

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February 23rd, 2010

Umbrella & Excess Rate Renewals at Jan 1, 2010

Posted at 11:00 AM ET

Premium income fell for insurers primarily because the weak economy left customers with smaller businesses and reduced value exposures to insure. Even when rates were flat or slightly higher, some insurers’ premium income on specific placements declined by 10 percent or more. Reduced premium bases were particularly evident in the Fortune 2000 lead Umbrella business. Segments that experienced pricing stability or rate increases include the small to middle market segment, excess towers where there is less rate reduction pressure and large insureds experiencing loss activity. This last group includes the energy, utilities, rail, transportation and life science industries. Given the recovery in the capital markets and new insurer entrants, absent significant changes in loss reserves or activity, the outlook is for a continued competitive situation.

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February 22nd, 2010

Guy Carpenter Sponsors New MicroRisk Publication

Posted at 10:00 AM ET

As a leader in the micro(re)insurance sector, Guy Carpenter continues to communicate the need for and the opportunities within this innovative and growing arena with its sponsorship of MicroRisk, a new quarterly publication devoted to the market for insurance products aimed at protecting low-income people. In the first issue of MicroRisk, MMC President and CEO Brian Duperreault discusses the viability of and challenges associated with microinsurance in “Big Hitters Eye Micro Opportunities.” Guy Carpenter Assistant Vice President Alex Bernhardt is mentioned in an article about catastrophe protection for low-income populations in the wake of the recent Haiti earthquake.

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February 19th, 2010

Canada Sees Slight Softening of Rates at Jan 1 Renewals

Posted at 2:59 PM ET

In Canada the January 1, 2010 renewals showed a slight softening of rates. For working layers, much depended on the reinsured’s loss activity. Property Per Risk covers with little or no loss activity averaged reductions of 3 percent to 6 percent. Greater loss activity pushed rates up on average 5 percent to 10 percent. Casualty programs’ working and clash layers were generally flat, again depending on loss activity. If there were significant losses, working layers increased 3 percent to 5 percent. Clash layers were flat to declining 3 percent. Rates for all excess of loss covers were often influenced by whether the anticipated subject premium increased or decreased. Decreasing subject premiums made it more difficult to get rate reductions. There is very little proportional business remaining in Canada. That which was renewed did so with little change to ceding commission terms.

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February 19th, 2010

Update: Train Collision, Buizingen, Belgium

Posted at 1:19 PM ET

belgium-trainsmall1At least 18 people died and 171 more were injured when two trains collided near the Belgian capital of Brussels during morning rush hour on February 15, according to reports. The crash - one of the deadliest rail accidents in Belgian history - occurred just outside the station of Buizingen, near the town of Halle, at around 08:30 local time (07:30 UTC) as commuters headed to work in Brussels. Reports said one of the commuter trains collided laterally with another as it was shifting onto a merging track, wrecking some carriages and severely damaging overhead power lines. The force of the collision smashed one train deep into the other, causing severe injuries to passengers as the front ends of both trains pushed upwards in a mass of twisted metal. Other carriages were hurled on to their sides, reports said.

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February 19th, 2010

Week’s Top Stories: Feb 13, 2010 – Feb 19, 2010

Posted at 12:25 PM ET

Catastrophe Bond Market Continues to Improve:  Despite the challenging financial conditions of late 2008 and early 2009, the catastrophe bond market continued to play a critical role for both sponsors and investors over the past 12 months. Throughout the year, as financial markets stabilized generally, catastrophe bond issuance conditions continued to improve. In 2009 USD3.4 billion of risk capital was issued through 18 transactions. In terms of risk capital, this is a 25 percent increase over 2008. After declining over the first two quarters of 2009, total catastrophe bond risk principal outstanding increased from USD12.0 billion at year-end 2008 to USD12.2 billion at year-end 2009, reflecting a particularly strong fourth quarter for issuance.

Read the article »

Higher Pressure on Cat Risk Under Solvency II, Part I: Standard Formula Approach:  The objective of these articles is to provide, based on a review of CEIOPS’ recent papers, a summary of how non-life cat risks are likely to be quantitatively assessed under Solvency II. (Re)insurers may quantify their individual catastrophe risk charge as part of one of three frameworks: the standard formula; a partial internal model and a full internal model.

Read the article »

Solvency II - Rationale for the Capital Requirement Increase for Underwriting Risk:   In its series of Consultation Papers on Level 2 implementation Measures for Solvency II, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) drafted, in Consultation Paper 71, a new proposal for the calibration of non-life underwriting risk. Additionally, CEIOPS published its final and third set of advice to the European Commission (EC) at the end of January 2010. The purpose of this briefing is to outline the rationale provided by CEIOPS behind the proposed increase in the SCR in respect of non-life underwriting risk. 

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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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Insurers Show Continued Interest in Casualty Clash Cover: Large insurers continue to seek Casualty Clash coverage. They are motivated by the results of the quantification of their tail risk exposure in Enterprise Risk Management initiatives, maintenance of consistent earnings and minimization of shock loss surprises to analysts. Clash protection also offers protection against higher working layer retentions. In addition, insurers are generally concerned about accumulations (stacking) of net loss exposures across a single or multiple lines of business and/or multiple insureds that may leave the insurer vulnerable to a non-industry loss event of unpredictable magnitude. Insurers are operating in a very competitive environment in many (but not all) of the underlying primary casualty covers covered by clash reinsurances.

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Five Ways to Manage Innovation:  To cut through the claims of innovation in the market, you need to know what you’re looking for. There are plenty of capital models, catastrophe models and Enterprise Risk Management (ERM) practices in the (re)insurance industry, but which are the most valuable innovations? The right choices can protect your capital, help you deploy it optimally and ultimately bolster shareholder value … but faux innovation can slow your growth - or leave you exposed to unexpected risk or still leave you exposed when you thought the gap had been filled.

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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.  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. 

February 18th, 2010

Higher Pressure on Cat Risk Under Solvency II, Part II: (Partial) Internal Model Approach and Conclusion

Posted at 12:00 PM ET

Frank Achtert, Managing Director, Financial Intelligence Team, and Maximilian Strasser, Vice President
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In 2009, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) issued details of its Level 2 implementation measures for Solvency II in three waves of consultation papers. The capital charge for the catastrophe risk sub-module (NLCAT), a key driver of capital for non-life carriers and reinsurers, is covered in various publications, primarily in “CEIOPS’ advice for Level 2 Implementation Measures on Solvency II: SCR standard formula - Article 111 Non-Life Underwriting Risk (former CP 48)” and Consultation Paper (CP) 71 - “SCR Standard Formula - Calibration of non-life underwriting risk”. It should be noted that the proposals made in CP71 are subject to a consultation process resulting in recommendations to the European Commission in spring 2010 and therefore, may not be final. Notably these rules have been not covered by CEIOPS’ final advice to the European Commission (EC) published at the end of January 2010.  

 

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