Archive for July, 2010



July 21st, 2010

Top 10 Stories: 2Q 2010

Posted at 1:00 AM ET

1. 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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2. April 1 Reinsurance Renewals: Rates Lower; Returns Under Pressure:  The April 1, 2010 reinsurance renewals are dominated by Asia, but were conducted with one eye on the catastrophes that occurred elsewhere in the world. Reinsurance rates in most cases continued the decline experienced at January 1, 2010 which occurred largely because of the effects of healthier (re)insurer balance sheets. The large earthquake in Chile, and, to a lesser extent, windstorm Xynthia in Europe, both striking in the first quarter of 2010, caused pause for thought. There are several significant renewals at April 1 in the US, which did not show signs of any impact from the recent global loss activity. There was some evidence of price tightening in parts of Latin America. The Chile situation remains uncertain and earthquake losses generally develop more slowly than wind events. Up to half of catastrophe loss ratio budgets were consumed, causing reduced headroom for a larger catastrophe later in the year. This scenario, along with buoyant balance sheets, lower investment yields and thinner reserve releases will put pressure on returns, sustaining active capital management and perhaps, in time, stabilizing the market.

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3. 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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4. 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 (USD7.08 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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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.

Read the article »

6. 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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7. 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 US 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. Transocean said the 400-by-250-foot (120-by-80 meter) rig is located approximately 42 miles offshore Venice, Louisiana, on Mississippi Canyon block 252.

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8. 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.

Read the article »

9. Solvency II In Depth:  Guy Carpenter & Company, LLC sponsored this extended roundtable discussion that considered the progress made by (re)insurance as the Solvency II regime approaches. Held in London, it was attended by a number of UK and continental Europe industry leaders, including Guy Carpenter Managing Director and European Solutions Group Leader Eric Paire. We present the text of the roundtable discussion here as it appeared in Reinsurance Magazine.

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10. Solvency II - Non-Life Underwriting Risk in Light of QIS 5:  On April 15th, 2010, the European Commission (EC) 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 (CP) submitted during 2009. This article takes a deeper look at the calibration of non-life underwriting risk as part of the overall SCR calculation.

Read the article »

Click here to register to receive e-mail updates »

*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.

July 20th, 2010

GC Capital Tip: Chart Room

Posted at 1:00 AM ET

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.

View all GC Capital Tips >>

July 19th, 2010

Terrorism Risk Highlighted at OECD Meeting by Guy Carpenter’s Director of Reinsurance Market Management, Chris Klein

Posted at 1:00 AM ET

klein_chris_bioGuy 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.

Continue reading…

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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And, you may have missed…

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.

Read the article »

Click here to register for e-mail updates »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

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.

Read the article »

Click here to register to receive e-mail updates »

*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.

July 15th, 2010

Guy Carpenter Asia Pacific Climate Impact Centre: Updated Prediction of Seasonal Tropical Cyclone Activity over the Western North Pacific for 2010

Posted at 12:00 AM ET

1. Introduction

This is an update of the predictions of the annual number of tropical cyclones (TCs) in the western North Pacific (WNP) 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.

Continue reading…

July 14th, 2010

Initial Reactions to Health Care Reform: An Insurer and Reinsurer Perspective: Index to Articles

Posted at 1:00 AM ET

rains_david_141pxDavid Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health Specialty and Ryan Keith, Assistant Vice President
Contact

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.

Part I: Introduction:  With the passing of the Patient Protection and Affordable Care Act, the environment for health insurers has drastically changed. Undoubtedly, the wheels of progress move slowly and we have only begun to understand the full impact that the reforms will have on our industry. 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.

Read the article »

Part II: Changes With the Biggest Impact:  In addition to the themes addressed in the introduction, several other specific aspects of health care reform were on the top of most executives’ minds. Based on the feedback received, this article identifies the following seven aspects of health care reform that our business partners identified as having the biggest impact on their organization.

Read the article »

Click here to register to receive e-mail updates »

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. Please consult your insurance/ reinsurance advisors with respect to individual coverage issues.

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. 

July 13th, 2010

Initial Reactions to Health Care Reform: An Insurer and Reinsurer Perspective, Part II: Changes with the Biggest Impact

Posted at 1:00 AM ET

rains_david_141pxDavid Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health Specialty and Ryan Keith, Assistant Vice President
Contact

In addition to the themes addressed in the introduction, several other specific aspects of health care reform were on the top of most executives’ minds. Based on the feedback received, this article identifies the following seven aspects of health care reform that our business partners identified as having the biggest impact on their organization.

Continue reading…

July 12th, 2010

Initial Reactions to Health Care Reform: An Insurer and Reinsurer Perspective: Part I, Introduction

Posted at 1:00 AM ET

rains_david_141pxDavid Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health Specialty and Ryan Keith, Assistant Vice President
Contact

With the passing of the Patient Protection and Affordable Care Act, the environment for health insurers has drastically changed. Undoubtedly, the wheels of progress move slowly and we have only begun to understand the full impact that the reforms will have on our industry. 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.

Continue reading…