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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