October 22nd, 2010

Week’s Top Stories: October 16 - October 22, 2010

Posted at 11:17 AM ET

Chart: Regional Catastrophe Reinsurance Rate Fluctuations:    Rates in the United States fell during the January, April, June and July 2010 renewals. The decline in prices varied by region, exposures and loss history but generally moved in a channel of down 6 percent to down 15 percent. Risk-adjusted catastrophe prices in the United States fell by an average of 8 percent through 2010, though the picture was somewhat complicated by adjustments to catastrophe models that decreased predicted losses for earthquake and wind perils. Factoring in modeling adjustments, rates declined by 12 percent on average. Rates in the United States have fallen back to levels last seen in 2008 as improved investment returns and low catastrophe losses in 2009 bolstered (re)insurers’ balance sheets and exerted gradual downward pressure on prices.

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Guy Carpenter Asia Pacific Catastrophe Report; Executive Summary:  The Asia Pacific region has significant exposure to a wide variety of catastrophe perils: within the region lie some of the world’s most active earthquake areas, the northwest Pacific typhoon zone and numerous other localized threats of windstorm, flood, hail, snow, freeze and fire. In fact such catastrophe exposures could be said to be the “greatest” of any region of the world. These exposures generate a clear need for insurance for commercial ventures and for individuals with economic well-being and reinsurance for the insurance company aggregators of this exposure.

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Update: Typhoon Megi:   Typhoon Megi is currently located approximately 280 miles (450 kilometers) southeast of Hong Kong, according to the Joint Typhoon Warning Center (JTWC). The storm has weakened over the last 24 hours, with sustained winds currently reaching 110 mph (175 kmph), equivalent to a category 2 typhoon. Megi is slowly tracking north at 6 mph (10 kmph) and the JTWC now expects the storm to make landfall in the Chinese province of Fujian on October 23 UTC as a category 1 typhoon. The JTWC said typhoon-force winds currently extend around 75 miles (120 kilometers) from the center of the storm while tropical storm-force winds extend around 205 miles (330 kilometers).

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Intellectual Property Risk Management in Asia: A Growing Concern: The strategic importance of intellectual-asset management has undeniably increased in Asia in recent years. Since the integration of China into the world economy the Chinese government has been placing increasing value on intellectual property rights (IPR) and its protection. The country’s patent office now leads the world in patent applications.

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World Catastrophe Reinsurance Market: The World Catastrophe Reinsurance Market 2010 report finds that surplus capital in the reinsurance market has been depressing prices, causing them to fall by 6 percent on average through the 2010 renewal season. Guy Carpenter estimates that the reinsurance market was overcapitalized by as much as USD20 billion, or 12 percent, at the beginning of 2010. While this amount came down to approximately 8 percent by the end of June, reinsurers’ excess capital continued to be the main driver of rate reductions at the 2010 renewals. If no market-changing event were to occur in the second half of the year, surplus capital is likely to remain the driving force behind continued rate softening at next year’s January 1 renewal, according to the study.

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Solvency II - Rationale for the Capital Requirement Increase for Underwriting Risk: In its series of Consultation Papers on Level 2 implementation Measures for Solvency II, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) drafted, in Consultation Paper 71, a new proposal for the calibration of non-life underwriting risk. Additionally, CEIOPS published its final and third set of advice to the European Commission (EC) at the end of January 2010. It is noteworthy that non-life underwriting risk is not covered in this final advice. Thus, the calibration changes suggested in CP 71, which would lead to an average of a 35 percent increase in the SCR for non-life underwriting, are still valid. It should be noted that the proposals in the CP are subject to a consultation process resulting in final recommendations by the end of March 2010 and therefore may not be final. The purpose of this briefing is to outline the rationale provided by CEIOPS behind the proposed increase in the SCR in respect of non-life underwriting risk.

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