April 1st, 2011

Week’s Top Stories: March 26 - April 1, 2011

Posted at 10:21 AM ET

Reinsurance Market and Rate Direction Still in Transition at April 1, 2011 Renewals:  With substantial first quarter insured losses from catastrophes in Australia, Japan and New Zealand and the political unrest in the Middle East and North Africa, the direction of global reinsurance rates at April 1, 2011 renewals varies by region and line of business. Guy Carpenter & Company released its annual report on the state of the reinsurance market at the April 1 renewals period. As the quarter comes to a close, it is the most costly first quarter on record for the industry.

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Chart: Guy Carpenter Bermuda Reinsurance Composite, Source of Earnings, Year-End 2010

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Chart: Guy Carpenter Bermuda Reinsurance Composite, Return on Equity, Year-End 2010

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Update: 9.0Mw Earthquake Strikes off Northeastern Japan:  A powerful earthquake struck off the coast of northeastern Japan on March 11, causing severe shaking near the epicenter region and triggering a massive tsunami that devastated coastal communities. There are fears the death toll could exceed 10,000 people, according to reports. Widespread property damage has been reported across northern Japan despite the country boasting the strictest building standards in the world and damage at a nuclear facility in Fukushima has prompted fears of serious radioactive leaks. Early estimates issued by AIR Worldwide and EQECAT suggest insured losses could be between USD12 billion and USD35 billion. Both the U.S. Geological Survey (USGS) and the Japanese Meteorological Agency (JMA) have recently upwardly revised their measurements of the earthquake’s magnitude to 9.0, making it the fourth most powerful earthquake in the world since 1900 and the largest in Japan since modern instrumental recordings began 130 years ago.

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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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TRIA, U.S. Terrorism and International Terrorism: Effect on the Insurance and Reinsurance Markets:   Commercial insurers are strongly supportive of the Terrorism Risk Insurance Act of 2002 (TRIA), as it provides them an ultimate safety net for their terrorism exposures. However, the residual risk for terror events retained by insurers below the triggers and retention levels set by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), coupled with the relatively high cost of reinsurance in key exposure zones, means that insurers remain cautious about terrorism exposure. As a result, they continue to avoid accumulating high-profile urban exposures.

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