May 7th, 2010

Week’s Top Stories: May 1 - 7, 2010

Posted at 11:18 AM ET

Chart: United States Property Casualty Initial Accident Year Loss Ratios & Subsequent Development:  Data presenting the ratio of IBNR Reserves to Initial Accident Year Reserves. The trend follows the underwriting cycle. In a soft market, IBNR is not as generous. In a harder market, where premiums are higher and more dollar per unit of risk is being earned, IBNR is more generous.

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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 local time, 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 U.S. 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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Guy Carpenter Asia-Pacific Climate Impact Centre: 2010 Predictions of Seasonal Tropical Cyclone Activity over the Western North Pacific:  Real-time predictions of the annual number of tropical cyclones affecting the western North Pacific and the South China Sea were first issued in 2000 by the Laboratory for Atmospheric Research at City University of Hong Kong (CityU) and annually thereafter until 2008 when such predictions were issued by the Guy Carpenter Asia-Pacific Climate Impact Centre, also at CityU. Verifications of the predictions for the past ten years have shown that the predictions are mostly correct within the error bars.

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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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Continental European Legislative and Judicial Trends: Renewal of the EU Insurance Block Exemption Regulation:   In 1992, the European Commission (Commission) adopted the first Block Exemption Regulation (EEC) No. 3932/92 applicable to the insurance sector. The Regulation exempted particular forms of cooperation in the insurance industry from the prohibition of restrictive practices regarding competition under Article 101, Treaty on the Functioning of the European Union (TFEU). The Regulation expired in 2003 and was replaced by the current Regulation (EC) No. 358/2003 after the Commission conducted a thorough consultation process with the insurance industry, the public and consumer organizations.

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And, you may have missed…

Navigating Pricing Peaks and Valleys*:     The capital models for (re)insurance risks are evolving. Over the past 15 years, alternative sources of capital have become increasingly important, particularly in the capital-constrained environments that follow major catastrophe events. As expected, capital market vehicles such as catastrophe bonds and sidecars have brought additional capacity to risk-bearers when they need it most, alleviating price pressure as a result.

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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.

Guy Carpenter & Company, LLC provides this report for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

Readers are cautioned not to place undue reliance on any historical, current or forward-looking statements. Guy Carpenter & Company, LLC undertakes no obligation to update or revise publicly any historical, current or forward-looking statements, whether as a result of new information, research, future events or otherwise.

Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

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