April 30th, 2010

Week’s Top Stories: Apr 24 - 30, 2010

Posted at 9:00 AM ET

Explosion and Fire at Offshore Oil Rig, Gulf of Mexico:    An explosion and large fire on an oil rig in the Gulf of Mexico left 11 workers missing and 17 others injured on April 20. The blaze on the Deepwater Horizon drilling rig, which broke out around 22:00, sent flames and smoke high into the sky about 40 miles off the coast of Louisiana. Seventeen workers were injured, three critically, and rescuers are still searching for 11 missing people. It was not known whether the missing workers were able to make it to one of the rig’s lifeboats. Reports said the rig, which is owned by Transocean Ltd, was under contract to the oil giant BP at a cost of USD533,000 (EUR 395,000) a day and doing exploratory drilling. The rig is listing badly and threatening to topple over, the US Coast Guard said. Reports said the rig, which was built in 2001 in South Korea at a cost of about USD350 million, has a replacement value of up to USD700 million today.

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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.

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Chart: Guy Carpenter Bermuda Reinsurance Composite:   Sources of Earnings, 2008 - 2009:   Fortunes for this cohort of companies improved dramatically and unexpectedly in 2009 following the poor performance during 2008’s global financial crisis. Aggregate net income stood at USD9.5 billion in 2009 versus a loss of USD1.9 billion in 2008. One principle driver in 2009 was a 71 percent increase in underwriting earnings.

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Chart: United States National Per Risk Reinsurance Peer Company Review:   The property per risk reinsurance market experienced relatively loss free years from 2002-2007 along with high premiums.

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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.

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Multi-Year Cover Gaining Steam in LA&H:   Carriers thrive on predictability. Risk management techniques, models, and sometimes intricate programs are devised to anticipate insured losses and take the appropriate risk transfer measures. The use of multi-year cover for accident and health lines of business, though in its infancy, could be the next step in mitigating risk and reducing ambiguity. With a longer-term commitment, (re)insurers trade price advantages that come from sharp turns in the market for the predictability that both crave, particularly when the market becomes volatile.

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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, Inc. 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.

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