February 3rd, 2010

Top 10 Stories: January 2010

Posted at 6:30 PM ET

1. 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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2. 2009 Catastrophe Update: Global Insured Losses in 2009: 2009 has seen an impressive recovery from last year’s financial crisis and the uncertainty caused by losses from Hurricane Gustav and Hurricane Ike. This recovery has been driven by the easing of financial markets and low catastrophe activity. A very quiet hurricane season, coupled with relatively low losses for other weather-related events, meant insured losses reached USD24 billion in 2009(1), the lowest figure since 2006 and a significant fall from USD52.5 billion(2) in 2008.

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3. 2009 Catastrophe Update: Outlook for 2010: Predictions that the El Niño phenomenon is likely to persist through the northern hemisphere winter and into spring could have a significant impact on natural hazards worldwide next year. El Niño events have historically produced floods and drought in the more impoverished regions of the world such as southern Africa and parts of South America. Prolonged dry periods may occur in Southeast Asia, Southern Africa and Northern Australia during an El Niño event, while heavy rainfall and flooding have hit Peru and Ecuador in the past. In the United States, El Niño’s potential impact includes above-average precipitation in the south, with below-average rainfall in the Pacific Northwest and the Ohio and Tennessee Valleys.

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4. 2009 Catastrophe Update: Other Significant Events of 2009: In 2009, there were frequent reminders of the risks posed by earthquakes, and it was Asia again that suffered the most when two massive earthquakes struck Indonesia and the Samoa region in the space of a day. The most deadly earthquake of the year hit southern Sumatra in Indonesia on September 30, killing more than 1,100 people. The earthquake, measuring 7.6Mw, left around 500,000 people homeless after 250,000 homes were damaged, half of them completely destroyed.

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5. (Re)Insurance Innovation: Committing to the Leading Edge, Part I: Overview: The threats to which (re)insurers’ capital is exposed seem to multiply with alarming regularity. Today, the industry is contending with risks that were barely imaginable (at best) 20 years ago. In an age when carriers must respond to casualty catastrophes, the possible effects of climate change and financial market calamity - perhaps all on the same earnings call - it’s natural to wonder if the right tools and techniques for the job are available. Risk and capital management have only grown in complexity, a trajectory that is quite likely to continue - and probably accelerate.

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6. Nine Months 2009: Guy Carpenter Global Reinsurance Composite: The members of the Guy Carpenter Global Reinsurance Composite (GCGRC) saw their total net income more than double to almost $10 billion thanks to strong underwriting results and a substantial recovery in asset values.

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7. 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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8. Earthquake in Haiti: A powerful earthquake that hit Haiti at 21:53 UTC on 12 January (16:53 local time) has caused massive destruction across the poor Caribbean country and is feared to have killed hundreds or thousands of people. The earthquake, measuring 7.0 Mw, was located 10 miles (15 kilometers) southwest of Port-au-Prince and 90 miles (140 kilometers) east of Les Cayes, according to the US Geological Survey (USGS). The USGS added that the quake was centered about 6.2 miles (10 kilometers) underground and was felt in the Dominican Republic and eastern Cuba. It was the largest earthquake to hit Haiti for 200 years, according to the USGS. At least 33 aftershocks have hit the region since the main earthquake, the most powerful at 5.7 Mw.

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9. 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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10. (Re)Insurance Innovation: Committing to the Leading Edge: Part II: The Challenge of Innovation: Innovation can be a source of competitive advantage. A (re)insurer - or service provider (e.g., a reinsurance intermediary) - devises a solution to a particular challenge that the industry faces. It results in improved risk or capital management, for example, leading to enhanced margins, the optimization of capital deployment or expense management. Since the innovator - or early adopter of a service provider’s new idea - has access first, it realizes the benefit ahead of competitors that wait for the trend to crystallize.

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