April 27th, 2011

Top Stories: First Quarter 2011

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. Guy Carpenter Publishes New Insurers’ Guide to Succeeding Under Solvency II:  Guy Carpenter & Company has released a special report, Succeeding under Solvency II - Pillar One: Capital Requirements. The paper is the first in a series of Guy Carpenter reports analyzing Solvency II and its attendant issues as they are finalized over the next several months.

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3. 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 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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4. 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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5. 2010 Catastrophe Update: Part I, 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 billion. 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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6. Earthquake Strikes off Northeastern Japan:  A powerful earthquake struck off the coast of northeastern Japan at 05:46:23 UTC on March 11, causing severe shaking near the epicenter region and triggering a massive tsunami, according to reports. The U.S. Geological Survey (USGS) said the earthquake measured 8.9Mw while the Japanese Meteorological Agency said it recorded a magnitude of 8.4. The USGS added that the quake was located 130 kilometers (80 miles) east of Sendai and 373 kilometers (230 miles) northeast of Tokyo, at a depth of 24 kilometers (15 miles). This is the fifth most powerful earthquake since 1900 and the largest in Japanese recorded history, according to reports. At least 40 aftershocks have hit the region since the main earthquake, the most powerful at 7.1Mw.

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7. 2011 Reinsurance Renewal Rates: Overview: An overview of reinsurance rates reveals a picture of a generally softening market on an overall basis, with ample reinsurer capacity available for most lines. But beneath this generality lies a range of experiences for individual reinsurance buyers, according to the class of business, their own loss record and the territorial scope. In many cases, reinsurance purchasing strategies in a softening market were one of the few places buyers could turn to mitigate the effect of soft conditions in original markets.

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8. 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.

Read the article >>

9. 2011 Outlook: Preparing for an Inflection Point: The macroeconomic environment as we enter 2011 is a challenging one for the reinsurance industry. A combination of low yields, high levels of sector capital and lower rates on-line has led to a climate of persistent low valuations and stubbornly suppressed forward earnings rates. In addition, there is no clear catalyst on the horizon. Until we see a meaningful change in one of these underlying factors, the forecast is for more of the same.

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10. Solvency II Update: QIS 5 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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