January 3rd, 2011

Top Stories of December, 2010

Posted at 1:00 AM ET

1. 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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2. 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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3. 2010 Catastrophe Update: 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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4. 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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5. Chart: Guy Carpenter Global Reinsurance Composite, Return on Equity, 9 Months 2010

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