July 16th, 2010

Week’s Top Stories: July 10 - July 16, 2010

Posted at 10:00 AM ET

Reinsurance Renewal July 1, 2010:  Capital Cushion Continues to Impact Pricing:  Further erosion of rates was evident at the July 1, 2010 reinsurance renewal. Property rates were down by as much 15 percent despite substantial catastrophe loss activity in the first half of 2010.  Heavy losses from the Chilean earthquake were insufficient to turn prices outside the areas immediately affected by the earthquake, despite the announcement of large increases in estimates from the largest European reinsurers. In the energy and casualty sectors, conditions were flat or down, but the Deepwater Horizon rig disaster may exert upwards pressure as more information emerges. Excess capital remains available to absorb losses as evidenced by continuing share buy-backs and the substitution of equity capital with less expensive debt.

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Initial Reactions to Health Care Reform: An Insurer and Reinsurer Perspective: With the passing of the Patient Protection and Affordable Care Act, the environment for health insurers has drastically changed. What we do know is that these changes will have a significant and immediate impact on every organization conducting business in the health care arena. In order to assess the current situation, brokers throughout Guy Carpenter & Company, LLC reached out to our business partners in all segments of the health care industry. In total, Guy Carpenter spoke with 24 various organizations about the immediate and long term effects of health care reform.

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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 (ERM) 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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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 has prepared an issues paper that provides guidance to assist (re)insurers in implementing the ORSA.

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Guy Carpenter Asia Pacific Climate Impact Centre: Updated Prediction of Seasonal Tropical Cyclone Activity over the Western North Pacific for 2010:  This is an update of the predictions of the annual number of tropical cyclones in the western North Pacific for 2010 that we issued on April 26, 2010. These updates are made based on new information for the months of April and May 2010.

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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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