January 7th, 2011

Week’s Top Stories: Jan. 1- Jan. 7, 2011

Posted at 10:19 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.

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Chart: Guy Carpenter Global Property Catastrophe Rate on Line Index: 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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Chart: Typical Reinsurance Rate Changes by Business Segment, Jan. 1, 2011: 2011 renewal rates varied widely by business segment - yet most trended overall flat to negative to their levels last year. The only sectors with a clear upward bias were Marine & Energy and Credit, Bond & Political Risk.

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Floods in Queensland, Australia:  Heavy rain has triggered severe floods across a huge swathe of Queensland State in Australia, affecting around 200,000 people and inundating thousands of buildings in the affected towns and cities. An area the size of France and Germany combined in southern and central Queensland has been badly affected by the floods, with several communities cut off or inundated and coal mine production disrupted. Australian Prime Minister Julia Gillard has described the situation as “a major natural disaster” and said recovery would take “a significant amount of time”. As of January 4, the Australian Bureau of Meteorology has eight flood warnings in place in Queensland. Queensland State Premier Anna Bligh said the economic damage from the floods was likely to run into the billions of dollars. The Insurance Council of Australia has declared the floods a catastrophe but no insured loss estimates have been released.

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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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Capital Management Strategies Forced to Mature: As with everything that happened last year, the (re)insurance industry’s 2008 full-year financial results are open to interpretation. One could focus on the Guy Carpenter Global Reinsurance Composite’s shareholders funds decline of USD19.7 billion - not to mention a total net loss of USD6.1 billion - or zero in on the fact that most of this came from unrealized investment losses and note that most companies showed underwriting profits. Either way, capital has been depleted, and the capital positions that carried us through 2008 are not around this year. More than ever, capital management should be a top priority for every bearer of risk.

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