July 23rd, 2010

Week’s Top Stories: Jul 17 - Jul 23, 2010

Posted at 12:10 AM ET

GC Capital Tip: Chart Room:  We all know that a picture is worth a thousand words. That’s why GC Capital Ideas has the Chart Room. If you want to get a quick sense of important industry trends, the Chart Room provides snapshots of everything from extreme mortality bond issuances to the Guy Carpenter World Rate on Line Index. Each includes a brief summary and simple instructions for downloading the chart. We encourage you to use these charts in your presentations, along with the proper attribution.

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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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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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Terrorism Risk Highlighted at OECD Meeting by Guy Carpenter’s Director of Reinsurance Market Management, Chris Klein:  Guy Carpenter’s Director of Reinsurance Market Management, Chris Klein, spoke at a recent Organization of Economic Cooperation and Development meeting focusing on terrorism. Guy Carpenter’s (re)insurance industry report “Terrorism - Reinsurers Standing By,” was released in conjunction with the meeting. He presented a wide-ranging overview of how the reinsurance industry weathered the recent global financial crisis.

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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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Chart: Insurance Linked Securities Issuance, by Peril, 1997 Through April 1, 2010*:   On a standalone basis, the two most frequently securitized perils are U.S. hurricane USD (7.08 billion) and U.S. earthquake (USD 4.71 billion). Other perils securitized on a standalone basis include European windstorm, Japanese earthquake and, to a lesser extent, Japanese typhoon. Multi-peril transactions, in which the same dollar of risk principal is exposed to at least two or more perils accounts for 42 percent of total risk principal issued. Insurance linked securities (ILS) investors typically prefer single-peril / single-zone transactions as they provide greater ability to construct granular portfolios according to each investor’s risk preferences. ILS sponsors however, particularly large national and global writers with aggregate concerns across multiple perils and geographic zones, often prefer to economize risk transfer spend by applying a single limit across different non-correlated perils, for example U.S. hurricane and earthquake.

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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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