Catastrophe Bond Update: First Quarter 2010: Heavy Smoke, Some Fire: Encouraging Conditions Persist: In the first quarter of 2010, two catastrophe bond transactions were completed, and USD300 million of risk capital was issued. In response to strong investor demand, both transactions closed within initial price guidance and were upsized relative to announced placement targets. While this activity furthers the integration of the capital markets into the risk management processes of protection buyers, on balance, issuance volumes for the quarter were perhaps a bit lighter than expected at the close of 2009.
Chart: Update on April 1 Reinsurance Renewals, US Property Catastrophe: Market Quoting Behavior, Increased Variation in Quotes: Guy Carpenter & Company, LLC has performed further analyses based on the availability of more quoting detail. We have found increased variation from the January 1 renewals in reinsurer quotations across all regions, but the range remained consistent at down by 11 percent to up by 11 percent. Broader quote variation is expected as reinsurers position their portfolios more actively in the wake of January 1 renewal results.
April 1 Reinsurance Renewals: Rates Lower; Returns Under Pressure: The April 1, 2010 reinsurance renewals are dominated by Asia, but were conducted with one eye on the catastrophes that occurred elsewhere in the world. Reinsurance rates in most cases continued the decline experienced at January 1, 2010 which occurred largely because of the effects of healthier (re)insurer balance sheets. The large earthquake in Chile, and, to a lesser extent, windstorm Xynthia in Europe, both striking in the first quarter of 2010, caused pause for thought. There are several significant renewals at April 1 in the US, which did not show signs of any impact from the recent global loss activity. There was some evidence of price tightening in parts of Latin America. The Chile situation remains uncertain and earthquake losses generally develop more slowly than wind events. Up to half of catastrophe loss ratio budgets were consumed, causing reduced headroom for a larger catastrophe later in the year. This scenario, along with buoyant balance sheets, lower investment yields and thinner reserve releases will put pressure on returns, sustaining active capital management and perhaps, in time, stabilizing the market.
Chart: Update on April 1 Reinsurance Renewals, US Property Catastrophe: Market Quoting Behavior, Quotes by Market Segment: Guy Carpenter & Company, LLC has performed further analyses based on the availability of more quoting detail. Against a smaller number of renewal transactions at April 1 we observed the UK becoming more aggressive and the Bermuda market less aggressive in the Gulf region relative to their respective positions at January 1.
Micro Risk Management: Risk, if left unmanaged by people with low incomes, may render their attempts to exit poverty more difficult. It may also increase the likelihood of a return or new entrance to poverty for those who hover just above the poverty line, and may increase the chances of personal loan default for the minority of low-income individuals with current access to microcredit (small value loans usually provided to help the entrepreneurial poor to develop microenterprises).
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