February 25th, 2011

Week’s Top Stories: February 19 - 25, 2011

Posted at 9:00 AM ET

Chart: Lloyd’s Market Capacity:  Lloyd’s capacity for 2011 is expected to be broadly flat compared to 2010, as some syndicates lower capacity and others increase or enter the Market. Operating margins will be squeezed in 2011, although the overall Market profitability will remain driven by the catastrophe losses which may or may not be incurred.

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Update: Earthquake in New Zealand:  The official death toll from the earthquake that hit New Zealand’s South Island at 23:51 UTC on February 21 has now reached 102, according to reports from New Zealand’s civil defense authority. The epicenter of the earthquake, of magnitude 6.3, was located only 3 miles (5 km) from the city of Christchurch on New Zealand’s South Island, at a shallow depth of 2.5 miles (4 km), according to the U.S. Geological Survey (USGS).

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Navigating the A.M. Best Supplemental Rating Questionnaire Changes: Recent changes related to the A.M. Best Supplemental Rating Questionnaire (SRQ) will have a sweeping impact on U.S. property and casualty insurers. Respondents are facing new questions regarding enterprise risk management (ERM), new considerations for workers compensation coverage, and the release of the new version 11 of the RMS RiskLink TM model, all of which will factor into a company’s A.M. Best rating.

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Top Enterprise Risk Management Stories of the Last Year

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Chart: Reinsurance Sector Price to Book Multiples and Forward ROE: Low valuation of the reinsurance sector may prove to be a catalyst for change by driving reinsurance sector consolidation. The chart below plots quoted reinsurance companies on price to book ratios and forward consensus returns on equity. The shaded area below 0.9x book value which now comprises the majority of the sector, is where mergers and acquisitions (M&A) have tended to take place in the recent past. Combined with significant share buybacks already taking place in the sector, additional M&A could slow the growth of dedicated reinsurance sector capital, thereby restricting the supply of reinsurance. This, in turn, could eventually drive rates higher.

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And, you may have missed…

The Future of the Florida Property Market:  As U.S. property/casualty insurers begin to focus on their January 1, 2011 catastrophe renewals, they face a number of complex issues. The first challenge is effectively managing exposures in 2011 after an unexpectedly quiet hurricane season, in terms of losses. Following on the heels of the first six months of 2010, which saw significant losses from global catastrophes including higher levels of wind and hail losses in the midwestern United States, the Atlantic hurricane season was forecasted to be an active one.

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