This catastrophe bond transaction provides per-occurrence PCS Index Protection for U.S. hurricane and per-occurrence Paradex Protection for European windstorms.
Guy Carpenter Managing Director Kevin Stokes provides a forecast of events leading up to the July 1 renewals for property catastrophe reinsurance. The first quarter loss events will likely not have a major impact on pricing. He also reviews the 2010 Guy Carpenter storm forecast.
Guy Carpenter Managing Director Kevin Stokes reviews key issues and developments around the Florida market for property reinsurance. He offers early predictions of the June 1, 2010 renewal season.
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Here are our most popular stories on enterprise risk management that have appeared on GC Capital Ideas in 2010.
Corporate Decision Making Using Economic Capital Models: Part I: Introduction, Quantifying Corporate Risk: In the 1980s many large general insurance companies investigated the use of dynamic financial analysis for corporate decision making. Only a small number of insurers and reinsurers, many of which were European, were able to develop dynamic financial models that were adequate for use in decision making. The primary obstacles to implementation were actuarial knowledge and computer technology. By the early 2000s, technology had improved, actuaries had developed techniques that allowed better quantification of insurance risks and dynamic financial analysis had evolved into enterprise risk management (ERM) supported by economic capital models. With these improvements, regulators began to develop solvency rules that create incentives for insurers to implement economic capital models. Although the current impetus for economic capital models is regulatory, the original purpose of enhanced strategic decision making is still valid and companies that use their economic capital models for ERM will be industry leaders.
Corporate Decision Making Using Economic Capital Models: Part II: Identifying Capital Needs: Capital needs can be defined from a number of different perspectives:
(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.
(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.
(Re)Insurance Innovation: Committing to the Leading Edge, Part III: Get in the Game Early: Those who invest in and prioritize research and development - and introduce new tools and ideas - benefit from more than just the prestige of being first. Early movers define the standard to which others will have to adapt later. They shape the development of innovation, and thus its evolution, as it moves from a radically new idea to an accepted marketplace practice. In possessing this control, they hold the upper hand over their competitors, which become weighted with the burdens of the catch-up clamor.
(Re)Insurance Innovation: Committing to the Leading Edge, Part IV: Staying Out Front: Innovation must be continual, because of the lifecycle that governs it. If you’re not innovating (or adopting) now, you’re falling behind. The advantages of one innovative solution are quickly outpaced when another is developed or that same solution is adapted to new situations; and if the originator is not doing the work to make those leaps, the reputation of innovation can be quickly lost.
(Re)Insurance Innovation: Committing to the Leading Edge, Part V: The Elements of Innovation: Innovation requires a dedication to research, creativity, resources and foresight. Above all, however, it takes courage to accept the risks - to strive for success rather than cowering in fear of failure. In fact, the best companies learn from occasional mistakes. Learning from failure during the development stages of innovation strengthens a company’s capabilities. It creates an understanding of the issue at hand farther reaching and more in depth than that of the competitors which attach to the idea after it has been accepted as a standard. This understanding fosters a more effective use of that innovation as well as a platform from which to generate new ideas with the practical experience of what works and what does not.
Guy Carpenter Managing Director Kevin Stokes reviews global capacity and pricing developments in this very individual risk oriented business.
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Guy Carpenter Managing Director Kevin Stokes looks at the April 1 and mid-year 2010 renewal trends for the per risk property market for reinsurance.
GC Videocast - Trends in Global Catastrophe Losses: Chris Klein, Guy Carpenter’s Head of Business Intelligence, reviews trends in global catastrophe losses along with insured losses. Guy Carpenter’s ten year moving average of losses ticked down in 2009 to USD36.2 billion.
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.
GC Videocast - Dramatic Improvement in Reinsurer Earnings and Balance Sheets Following Financial Crisis: Chris Klein, Guy Carpenter’s Head of Business Intelligence, reviews the dramatic change and improvement in reinsurers’ fortunes following the global financial crisis. He reviews the year- end 2009 earnings results of the Guy Carpenter Bermuda Reinsurance Composite. He also reviews the primary drivers for capital decline and then growth among those reinsurers in 2008 and 2009, respectively. The impact of capital growth on capacity is also discussed.
New Videocast Series: The Global (Re)insurance Marketplace 2010: Guy Carpenter’s Experts: Today, GCCapitalIdeas begins a series of videocasts delivered by Guy Carpenter & Company, LLC experts covering trends and developments impacting the global (re)insurance marketplace. Over the next several weeks, on a daily basis, you will be able to hear and see our thought leaders offer their views on and interpretations of a wide range of timely issues. The topics will include: financial constraints impacting the market, the role of enterprise risk management on book value, the states of the property and non-property reinsurance markets, including upcoming June 1 and July 1 renewals and the current view of the insurance linked securities market. We are pleased to put you in closer touch with Guy Carpenter leaders and experts, and our intellectual capital, through this medium.
GC Videocast - US PC (Re)insurers’ Earnings Have Been Supported by Releases of Prior Year Loss Reserves: Can This Be Sustained? Chris Klein, Guy Carpenter’s Head of Business Intelligence, reviews the relationship between accident year initial loss picks and subsequent calendar year development for that accident year. Good years appear to get better and bad years appear to get worse.
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Aviation Market Struggling to Rebound: Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead. The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.
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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.
An Afriqiyah Airways plane carrying 104 passengers and crew on an international flight crashed as it attempted to land at Tripoli International Airport on May 12, killing all but one person on board. Afriqiyah Airways said Flight 8U771 was carrying 93 passengers and 11 crew. The sole survivor, a child reported to be Dutch, is being treated in a hospital. The Airbus A330-200 was flying from Johannesburg in South Africa to the Libyan capital when it crashed just short of the runway around 06:00 local time (04:00 UTC) after a nine hour flight, the airline said. Eyewitnesses said the aircraft started to break up as it came in to land in clear weather before totally disintegrating. Two flight recorders have been recovered and an investigation has been launched into the cause of the crash. Market sources quoted by Insurance Day said the aircraft had an insured value of USD123 million on a policy led by Catlin. Insurance Day added Afriqiyah Airways is thought to have a liability policy with a USD1 billion limit.
Chris Klein, Guy Carpenter’s Head of Business Intelligence, presents an illustration of the impact that higher investment returns can have on (re)insurer return on equity. A company with a 6 percent investment return is able to earn a 10 percent return on equity despite an unfavorable underwriting ratio. The situation is very different if the investment return drops by only 2 percentage points.
Chris Klein, Guy Carpenter’s Head of Business Intelligence, reviews the relationship between accident year initial loss picks and subsequent calendar year development for that accident year. Good years appear to get better and bad years appear to get worse.
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