July 15th, 2010

Top 10 Stories: June 2010

Posted at 10:00 AM ET

1. A National Flood Modeling Solution for Mainland France:  Guy Carpenter has developed a state-of-the-art probabilistic flood model for mainland France in collaboration with hydrological and hydraulic modeling experts, JBA Consulting and Intermap Technologies, a global provider of high-quality 3D digital elevation models.

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2. June 1 Reinsurance Rate Decreases are One Positive Development for Florida Companies: At each Florida renewal season there are many challenges companies face in designing and placing their reinsurance programs. This year was no exception. While companies deal with navigating the challenges of the Florida Hurricane Catastrophe Fund integration each year, 2010 also included heightened commentary by rating agencies regarding acceptable risk transfer approaches, the Florida Office of Insurance Regulation’s own views on risk transfer and an environment of continuing economic turmoil specific to the Florida insurance environment.

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3. 2010 Hurricane Season Begins: Knowing, Understanding and Better Managing the Risks:  The 2010 hurricane season kicked-off on June 1 and the meteorological forces wasted no time in getting down to business. Tropical storm Agatha slammed into Central America, killing at least 101 people. The hurricane season kick-off and the storm occurred as backdrops to the wrap up of the June 1, 2010 reinsurance renewals, traditionally centered on the Florida property marketplace.

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4. Global Reinsurance Composite Net Income Declines, Investment Income Recovers in 1 Q, 2010:  The Guy Carpenter Global Reinsurance Composite’s net income declined in the first quarter of 2010 compared with the same quarter in 2009. The companies comprising the group showed an aggregate net gain of USD1.4 billion, a decline of 31 percent from the first quarter of 2009. The primary driver was an increase in non-life underwriting losses.

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5. Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness:  Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of Enterprise Risk Management to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.

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6. Terrorism - Reinsurers Standing By:  As we approach the ninth anniversary of the September 11, 2001 attacks, the threat from terrorism continues to pose a risk to the (re)insurance industry. The nature of the threat has changed since 2001, but terrorism remains a constant and serious risk with global recorded terror incidents at historic highs. Terrorist organizations operating in unstable countries present a danger to the world, and the recent flurry of terrorist activity serves as a reminder that individuals and groups remain a serious threat.

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7. 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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8. The Time Profile of Risk: From the Desk of Guy Carpenter’s Chief Actuary:  According to the draft European Union Solvency II directives, companies will need to provide an “own risk and solvency assessment” (ORSA). The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has prepared an issues paper that provides guidance to assist (re)insurers in implementing the ORSA.

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9. Demand for Insurance Solutions Grows as Volcanic Ash Disrupts Supply Chains…Again:  Traditionally, insurance coverage for supply chain disruption has required physical damage to the insured’s assets to trigger a claim. However, following ongoing air traffic disruption caused by the eruption of Iceland’s Eyjafjallajökull volcano, as well as industrial action in key transport sectors and civil unrest overseas, Guy Carpenter sister company Marsh has seen increased interest from organizations wanting supply chain insurance that includes coverage for losses from non-physical damage.

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10. Solvency II - Non-Life Underwriting Risk in Light of QIS 5:  On April 15th, 2010, the European Commission published its draft technical specifications for the next Quantitative Impact Study (QIS) 5, which will be implemented from August to November of 2010. Based on empirical evidence, the general calibration of the standard formula solvency capital requirement (SCR) may fall between the calibration of QIS 4 and the calibration seen in the rigid proposals of the various consultation papers submitted during 2009. This article takes a deeper look at the calibration of non-life underwriting risk as part of the overall SCR calculation.

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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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