Impact on Reinsurance Market

So what does all this mean for the reinsurance market and pricing? On the back of the heavy losses in the first half of 2010, reinsurers were hoping to see an end to the soft market and for prices to rise. However, Guy Carpenter data shows the high payouts have generally been insufficient to turn prices. According to the Guy Carpenter World ROL Index, global catastrophe reinsurance rates fell by 6 percent on average through the 2010 renewal season (see Figure 2) as surplus capital and capacity drove down prices. This rate decline followed an increase of 8 percent in 2009 and a fall of 10 percent in 2008.

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Hurricane Karl made landfall about 10 miles (16 kilometers) north of Veracruz City in Mexico at around 18:30 UTC (11:30 local time) on September 17 as a category 3 hurricane with sustained winds of around 115 mph (185 kmph), according to the National Hurricane Center (NHC). The NHC added Karl was a relatively small storm at landfall, with hurricane-force winds extending 25 miles (35 kilometers) from its center and tropical storm-force winds extending 90 miles (150 kilometers). Karl weakened rapidly after coming shore as it tracked in a west-southwest direction over a sparsely populated region.

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Typhoon Fanapi, the 11th named storm of the West Pacific typhoon season, made its first landfall on the east coast of Taiwan on the morning of September 19 local time. According to sources, Fanapi came ashore in Taiwan’s Hualien County as a category three typhoon, packing sustained winds of around 105 mph (169 kmph).

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Hurricane Igor passed approximately 40 miles (65 kilometers) west of Bermuda at 03:00 UTC on Monday, September 20 (23:00 on September 19 local time), according to the National Hurricane Center (NHC). The NHC said Igor had weakened into a category 1 hurricane at this time with sustained winds of 75 mph (120 kmph). Bermuda was subjected to hurricane-force winds as Igor passed the island, with the NHC recording wind gusts of up to 93 mph (150 kmph). The strong winds and heavy rain associated with Igor has cut power to homes and triggered some flooding. As of 09:00 UTC, Igor was moving away from Bermuda in a north-northeast direction. Igor is expected to continue to move away from Bermuda today and pass offshore of the southeastern tip of Newfoundland in Canada on Tuesday. Igor remains a large hurricane, with hurricane-force winds extending 90 miles (150 kilometers) from its center while tropical storm-force winds extend 345 miles (555 kilometers).

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Executive Summary

2010 has been a difficult year for the reinsurance industry after it suffered one of the most costly first halves on record. Spiraling costs from disasters such as the Chilean earthquake and the Deepwater Horizon explosion in the Gulf of Mexico meant (re)insurers’ catastrophe budgets took a severe hit even before the hurricane season had started. Although insured losses reached USD23 billion in the first six months and an active hurricane season has been forecast, reinsurance rates generally declined through the 2010 renewals as surplus capital drove down prices.

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Guy Carpenter Examines Excess Capital Strategies At Monte Carlo Reinsurance Rendez-vous:    Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist, hosted its third annual press briefing on September 11 at the Reinsurance Rendez-vous 2010 in Monte Carlo. During the briefing Henry Keeling, President and CEO of Guy Carpenter’s International Operations, led a panel discussion on key industry issues, including determining the best use of excess capital in today’s marketplace.

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Reinsurance Rates Decline, Despite Costly Disasters in First Half of 2010, According to Guy Carpenter’s 2010 World Catastrophe Report:  2010 has proven to be a difficult year for the reinsurance industry, which suffered one of the costliest first halves on record. Despite spiraling losses, global reinsurance rates generally declined through the 2010 reinsurance renewals, according to Guy Carpenter & Company’s annual study of the global property catastrophe reinsurance market.

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Modeling the Impact of a Casualty Catastrophe:    Look no further than today’s headlines to see how a single catastrophic event or lawsuit can have far-reaching effects. Over the past few years, several incidents, seemingly isolated, have ballooned into cross-border, cross-industry and cross-business line catastrophes. Chain reactions of liability - such as the Deepwater Horizon oil spill, the collapse of Lehman Brothers and the Chinese Drywall product recall - have led insurers to ask: How do I assess the impact of a major legal liability catastrophe on my portfolio? And it’s not just the industry waiting for an answer: stockholders, analysts, rating agencies and regulators are listening, too.

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Modeling Loss Reserve Risk:   Loss reserves are essentially forecasts of losses that are going to be paid five, 10 and 15 years from now. Since the future cannot be predicted with perfect accuracy, reserves, of course, are difficult to estimate.

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Insurance Companies Undervalued?   Companies in the reinsurance sector are trading at or near long term low valuations. This raises the question: Why are “strong buy” recommendations not more common? The answer may lie in the fact that, generally, analysts and investors are concerned about three important obstacles to returns on equity.

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QIS5 - Premium and Reserve Risk: Sufficient Consideration of Non-proportional Reinsurance?    On July 6, 2010 the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) published the technical specification for the latest Solvency II Quantitative Impact Study (QIS) 5. QIS5 is scheduled to be carried out from August to November of 2010, with a report summarizing the results scheduled for release in April of 2011. Regarding the non-life premium and reserve and risk, Guy Carpenter & Company, LLC has observed a return to capital requirements more in line with QIS4 and an implicit incentive for the use of an internal model.

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Igor has weakened into a category 3 hurricane, with the center of the storm located approximately 730 miles (1,130 kilometers) south-southeast of Bermuda, according to the National Hurricane Center (NHC). Igor currently packs sustained winds of 120 mph (195 kmph) and is slowly moving in a northwest direction at around 9 mph (15 kmph). This general motion with some increase in forward speed is expected to continue over the next 36 hours before the storm takes a turn to the north-northwest. On this track, Igor is expected to move over Bermuda in around 72 hours’ time. The NHC said Igor is a large storm, with hurricane-force winds extending 105 miles (165 kilometers) from its center while tropical storm-force winds extend 290 miles (465 kilometers).

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Fanapi developed on September 14 to become the 11th named storm of the West Pacific typhoon season, and is currently located approximately 225 miles (360 kilometers) east-southeast of Taipei in Taiwan, according to the Joint Typhoon Warning Center (JTWC). The storm has strengthened since its formation and became the fifth typhoon of the season on September 16. Fanapi currently packs sustained winds of around 86 mph (148 kmph) and the storm is expected to strengthen over the next 48 hours. Fanapi is slowly tracking northwest at 3 mph (6 kmph) and the JTWC currently expects the storm to make landfall in Taiwan on September 19 as a category 2 typhoon.

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Karl developed in the northwestern Caribbean Sea on September 14 to become the 11th named storm of the 2010 Atlantic hurricane season. The storm subsequently made landfall near Puerto Bravo in Quintana Roo State on Mexico’s Yucatan Peninsula on September 15 as a topical storm, according to the National Hurricane Center (NHC). Karl weakened as it moved over the Yucatan Peninsula but re-intensified as it exited the region and moved into the southern Gulf of Mexico. Favorable conditions here saw Karl rapidly intensify into a hurricane (becoming the sixth hurricane of the 2010 season and subsequently the fifth major hurricane) and Karl is expected to strengthen further as it approaches the coast of Veracruz State in Mexico.

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Igor remains a powerful category 4 hurricane, with the center of the storm located approximately 955 miles (1,535 kilometers) south-southeast of Bermuda, according to the National Hurricane Center (NHC). Igor currently packs sustained winds of 145 mph (230 kmph) and is moving in a west-northwest direction at around 7 mph (11 kmph). Igor is expected to take a turn to the northwest shortly and maintain this motion over the next couple of days. On this track, Igor is expected to stay well clear of the U.S. coastline and approach Bermuda by the weekend. The NHC said hurricane storm-force winds extend 70 miles (110 kilometers) from the center of the storm while tropical storm-force winds extend 275 miles (445 kilometers).

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