February 11th, 2011

Week’s Top Stories: Feb. 5 - 11, 2011

Posted at 10:00 AM ET

Update: Tropical Cyclone Yasi:   Tropical Cyclone Yasi made landfall near Mission Beach along the northern coastline of Queensland in Australia at around 14:00 UTC on February 2 with sustained winds of around 240 kmph (150 mph), according to reports. The wind speeds are equivalent to a category 4 cyclone on the Saffir Simpson Scale and a category 5 cyclone on the Australian Tropical Cyclone Intensity Scale, making Yasi one of the strongest cyclones to hit Queensland since records began. Yasi came ashore around 50 kilometers (30 miles) south of Innisfail, pounding communities in the area with destructive winds and heavy rain. The landfall point was also to the south of Cairns (population of around 165,000) and to the north of Townsville (180,000), sparing both cities the worst of the severe weather but subjecting them to tropical storm-force winds, according to the Joint Typhoon Warning Center (JTWC). The JTWC added that Yasi was a large storm at landfall, with hurricane-force winds extending around 145 kilometers (90 miles) from its center and tropical storm-force winds extending 400 kilometers (250 miles).

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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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Guy Carpenter Bermuda Reinsurance Composite: 3rd Q 2010:   Shareholders’ funds for the Guy Carpenter Bermuda Reinsurance Composite grew by 4.5 percent from year-end 2009 through the third quarter of 2010, largely on the continued recovery of asset values and strong operating results. With overall market conditions failing to have improved materially over the past 18 months, companies have decided to return capital to shareholders - in the form of buybacks, primarily, as well as dividends. Capital returns through the first nine months of 2010 amounted to nearly USD6.3 billion.

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Chart: Specialty Lines - Typical Excess of Loss Rate Changes at the January 1 Renewal

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GC Podcast 15 - Macroeconomic Factors Impacting the Reinsurance Sector (David Flandro) Guy Carpenter Global Head of Business Intelligence David Flandro discusses the various macroeconomic forces currently impacting the reinsurance sector. The forces discussed in this new GC Capital Ideas podcast include the low interest rate environment, disinflation, capital position and European sovereign debt.

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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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