Archive for December, 2010



December 31st, 2010

Week’s Top Stories: Dec. 25 - Dec. 31, 2010

Posted at 7:00 AM ET

Global Reinsurance Outlook: Points of Inflection, Positioning for Change in a Challenging Market: Executive Summary:  Early predictions that January 1, 2011 reinsurance renewal rates were likely to fall have been proven correct. The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) Index lost 7.5 percent - the second consecutive annual decline. Contributing to this move has been a combination of factors, including moderate loss activity and abundant levels of industry surplus.

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Top Solvency II Stories: July - December 2010

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Top Casualty Cat Stories: 2010

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2010 Catastrophe Update:  Global Insured Losses in 2010: 2010 has proved difficult for the reinsurance industry. Spiraling costs from disasters in the first six months of the year particularly, coupled with overcapitalization in the reinsurance sector, created a difficult operating environment. Despite the lack of big U.S. losses in what was one of the most active Atlantic hurricane seasons on record, insured losses from global catastrophes reached USD36 billion in 2010, up from USD27 billion in 2009 . Natural hazards continued to be the largest source of losses in 2010 at USD31 billion, while man-made disasters cost (re)insurers USD5 billion. Total losses (both insured and uninsured) reached USD222 billion1. Some 260,000 people lost their lives to worldwide disasters in 2010, including around 220,000 people in the Haiti earthquake.

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Solvency II Update: QIS5 Windstorm Scenarios Are Within Range of Industry Models: European insurers and reinsurers will face requirements for full compliance with the new Solvency II capital regime requirements in just over two years. Even if this introduction is phased in - as the European Commission has reportedly indicated it could be - these requirements will have a wide-ranging and profound impact on the insurance industry throughout Europe.

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Most Popular Keyword:   significant events in 2010

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Indexation Clauses in Liability Reinsurance Treaties: A Comparison Across Europe: The Indexation Clause - otherwise referred to as the Stability Clause, Inflation Clause, or Severe Inflation Clause (SIC) - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss (XL) reinsurance treaty over the duration of the claims payout pattern. The clause is only relevant to losses that are of a long-tail nature (i.e., that take a long time to become paid) and is commonly found in the terms and conditions of Motor Liability (MTPL), General Liability (GTPL), and Professional Liability TPL XL reinsurance contracts of European cedents.

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December 30th, 2010

Global Reinsurance Outlook: Points of Inflection, Positioning for Change in a Challenging Market: Executive Summary

Posted at 1:00 AM ET

141x141jan1thumb2011 Renewal Rates Reflect Continued Softening

Early predictions that January 1, 2011 reinsurance renewal rates were likely to fall have been proven correct. The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) Index lost 7.5 percent - the second consecutive annual decline. Contributing to this move has been a combination of factors, including moderate loss activity and abundant levels of industry surplus.

Continue reading…

December 28th, 2010

Top Solvency II Stories: July - December 2010

Posted at 8:34 PM ET

Solvency II Update: QIS5 Windstorm Scenarios Are Within Range of Industry Models: European insurers and reinsurers will face requirements for full compliance with the new Solvency II capital regime requirements in just over two years. Even if this introduction is phased in - as the European Commission has reportedly indicated it could be - these requirements will have a wide-ranging and profound impact on the insurance industry throughout Europe.

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Coping with Solvency II:   The timing of Solvency II regulations may create a “perfect storm” for insurers as they struggle to cope with challenging pricing and lower investment returns. Solvency II is expected to be finalized in 2011 and implemented by 2013. Under the Standard Formula, companies will be required to maintain more capital per unit of risk, encouraging diversification. Although these are good objectives in principle, they may compound an already difficult operating environment in the short-term.

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Lloyd’s of London - Solvency II Gains May Be Worth the Pain: Lloyd’s has identified three objectives for post-Solvency II implementation: 1. Agreement with the Financial Services Authority (FSA) to maintain the supervisory “status quo”; 2. Approval of a single internal model for Lloyd’s; 3. Each syndicate to reach Solvency II standards.

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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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December 27th, 2010

Top Casualty Cat Stories: 2010

Posted at 1:00 AM ET

Here are the top ranked GCCapitalIdeas stories covering Casualty Catastrophe that appeared in 2010.

Casualty Catastrophe Implications of the Deepwater Horizon Oil Release Disaster: There has been no shortage of media coverage and discussion of the Deepwater Horizon oil spill and attendant insurance implications. The media has reported up to 300 lawsuits filed against BP and other defendants involved in the Deepwater Horizon oil release disaster.

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Guy Carpenter’s CasCat® Named “Insurance Initiative of the Year”: Guy Carpenter & Company, LLC announced that its CasCat® model has been named “Insurance Initiative of the Year” at the Insurance Day 2010 London Market Awards. The annual awards, presented December 2 at London’s Grosvenor House Hotel, are selected by a distinguished panel of independent judges and recognize outstanding work in the London (re)insurance market.

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Modeling Capabilities in Europe: Insurance-related catastrophe modeling has undergone a constant evolutionary drive for the past 25 years. The impetus behind the development of cat models began with the realization that large-scale events needed tracking to provide better means of managing insurance exposures to natural disasters.

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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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Guy Carpenter Earns Top Honors at Worldwide Reinsurance Awards: Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and part of the Marsh & McLennan Companies, was honored with two major accolades at The Review magazine’s prestigious Worldwide Reinsurance Awards 2010. For the fourth consecutive year, Guy Carpenter won the award for “Reinsurance Broking Team of the Year” as well as the coveted “Re/Insurance Initiative of the Year” award for developing CasCat®, the insurance industry’s first casualty catastrophe model.

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(Re)Insurance Innovation: Committing to the Leading Edge, Part III: Get in the Game Early: Those who invest in and prioritize research and development - and introduce new tools and ideas - benefit from more than just the prestige of being first. Early movers define the standard to which others will have to adapt later. They shape the development of innovation, and thus its evolution, as it moves from a radically new idea to an accepted marketplace practice. In possessing this control, they hold the upper hand over their competitors, which become weighted with the burdens of the catch-up clamor.

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December 24th, 2010

Week’s Top Stories: December 18 - 24, 2010

Posted at 9:00 AM ET

2010 Catastrophe Update:   Global Insured Losses in 2010:  2010 has proved difficult for the reinsurance industry. Spiraling costs from disasters in the first six months of the year particularly, coupled with overcapitalization in the reinsurance sector, created a difficult operating environment. Despite the lack of big U.S. losses in what was one of the most active Atlantic hurricane seasons on record, insured losses from global catastrophes reached USD36 billion in 2010, up from USD27 billion in 2009 . Natural hazards continued to be the largest source of losses in 2010 at USD31 billion, while man-made disasters cost (re)insurers USD5 billion. Total losses (both insured and uninsured) reached USD222 billion1. Some 260,000 people lost their lives to worldwide disasters in 2010, including around 220,000 people in the Haiti earthquake.

Read the article »

Solvency II Update: QIS5 Windstorm Scenarios Are Within Range of Industry Models:  European insurers and reinsurers will face requirements for full compliance with the new Solvency II capital regime requirements in just over two years. Even if this introduction is phased in - as the European Commission has reportedly indicated it could be - these requirements will have a wide-ranging and profound impact on the insurance industry throughout Europe.

Read the article »

China’s Costly Floods in 2010 Likely to Have Limited Impact:  China experienced one of its worst seasons of flooding in 2010 since the Yangtze River floods of 1998. Although the economic losses from its flood-related disasters are significant, the impact on the insurance industry is likely to be limited due to low insurance penetration levels in China, finds Guy Carpenter & Company. This assessment and other findings are presented in China Floods Report 2010, a new report.

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.

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World Catastrophe Reinsurance Market: Part I, Introduction, Catastrophe Events:   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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Most Popular Keyword:  qis4

And, you may have missed…

Modeling Capabilities in Europe:   Insurance-related catastrophe modeling has undergone a constant evolutionary drive for the past 25 years. The impetus behind the development of cat models began with the realization that large-scale events needed tracking to provide better means of managing insurance exposures to natural disasters.

Read the article »

Click here to register to receive e-mail updates >>

December 23rd, 2010

GC Securities, a Division of MMC Securities Corp., Completes First Catastrophe Bond To Use Paradex Trigger for U.S. Hurricane, U.S. Earthquake and Japan Typhoon to Benefit Flagstone Re

Posted at 3:01 PM ET

GC Securities, a provider of investment banking services to the (re)insurance industry and affiliate of Guy Carpenter & Company, LLC, has successfully structured and placed USD210 million of protection through an existing catastrophe bond shelf program, Montana Re Ltd., to benefit Flagstone Re. The Series 2010-1 Notes cover, for the first time, hurricane events in the Cayman Islands as well as U.S. hurricane, U.S. earthquake, Europe windstorm, Japan typhoon and Japan earthquake risks.

Providing protection on an occurrence basis for the Class C and D Notes and on a second and/or subsequent event annual aggregate basis for the Class E Notes, the issuance is the first to use the Paradex trigger for U.S. hurricane, U.S. earthquake and Japan typhoon events. The three-year notes have a scheduled for redemption date of January 8, 2014.

The Montana Re issuance provides Flagstone Re with USD210 million of fully collateralized, multi-year protection for a broad range of natural catastrophes in the United States, Europe and Japan.

GC Securities acted as the sole structuring agent, sole manager and sole bookrunner for the offering. This marks GC Securities’ sixth transaction of 2010, securing over USD1.2 billion of capital markets protection for its clients.

Bill Kennedy, CEO of Global Analytics, Capital Markets, Specialty Practices and Advisory, stated “We are pleased to support Flagstone Re’s risk management objectives with a transaction that is the first to cover Cayman Islands events and benefits from the strategic use of the Paradex Index.”

Chi Hum, Head of Global ILS Distribution, GC Securites, added “While typical ILS transactions are thought to be between 1-2 percent expected loss, this transaction further demonstrates the ability of capital markets investors to support a variety of risk profiles and structures. The Class D Notes, with an expected loss greater than 6.5 percent, were broadly supported with significant interest from the ILS investor base.”

Brent Slade, Chief Marketing Officer, Flagstone Re, continued “We are very pleased with the results and efficiency of this transaction. This marks the third such issuance we have sponsored and is testament to our ability to continually access the capital markets in creative ways and increase our capital flexibility.”

* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a U.S. 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. 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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December 23rd, 2010

2010 Catastrophe Update: Part III, Significant Events of 2010 and Outlook for 2011

Posted at 1:00 AM ET

David Flandro, Global Head of Business Intelligence, and Julian Alovisi, Senior Vice President

Other Significant Events of 2010

2010 saw some of the most damaging earthquakes in recent times. In addition to the events in Chile and New Zealand, Haiti was devastated by a powerful 7.0Mw earthquake in January. The earthquake was the most powerful to hit Haiti for some 200 years and it caused major damage in the capital of Port-au-Prince, Leogane and other towns near the epicenter region. Around 280,000 buildings collapsed or were severely damaged, according to the government. Up to 220,000 people died in the earthquake and the economic damage reached around USD8 billion. However, very low insurance coverage in Haiti meant insured losses were a tiny fraction of this amount (around USD200 million).

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December 22nd, 2010

2010 Catastrophe Update: Part II, Cyclones, Hurricanes, Typhoons

Posted at 1:00 AM ET

David Flandro, Global Head of Business Intelligence, and Julian Alovisi, Senior Vice President

Tropical Cyclones in 2010

For the second year running, no significant insured loss arose from global tropical cyclones. The 2010 hurricane season in the Atlantic was notable for its above-average activity and negligible impact on (re)insurers’ bottom lines, while typhoon development in the West Pacific was the lowest on record. These trends were driven by the development of a moderate La Niña event and very warm tropical Atlantic seas surface temperatures.

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December 21st, 2010

2010 Catastrophe Update: Part I, Global Insured Losses in 2010

Posted at 12:00 AM ET

David Flandro, Global Head of Business Intelligence, and Julian Alovisi, Senior Vice President

2010 has proved difficult for the reinsurance industry. Spiraling costs from disasters in the first six months of the year particularly, coupled with overcapitalization in the reinsurance sector, created a difficult operating environment. Despite the lack of big U.S. losses in what was one of the most active Atlantic hurricane seasons on record, insured losses from global catastrophes reached USD36 billion in 2010, up from USD27 billion in 2009 . Natural hazards continued to be the largest source of losses in 2010 at USD31 billion, while man-made disasters cost (re)insurers USD5 billion (1). Total losses (both insured and uninsured) reached USD222 billion1. Some 260,000 people lost their lives to worldwide disasters in 2010, including around 220,000 people in the Haiti earthquake (1).

Continue reading…

December 20th, 2010

China’s Costly Floods in 2010 Likely to Have Limited Impact

Posted at 1:00 AM ET

China experienced one of its worst seasons of flooding in 2010 since the Yangtze River floods of 1998. Although the economic losses from its flood-related disasters are significant, the impact on the insurance industry is likely to be limited due to low insurance penetration levels in China, finds Guy Carpenter & Company.  This assessment and other findings are presented in China Floods Report 2010, a new report.

Continue reading…