May 13th, 2011

Week’s Top Stories: May 7 - 13, 2011

Posted at 11:00 AM ET

Workers Compensation Reserve Risk Development: The Cat That May Be Lurking in Your Balance Sheet:  Sudden natural disasters such as the tragic Tohoku earthquake in March are not the only catastrophes that can impact insurers’ balance sheets and policyholder surplus. Such well publicized natural catastrophes only account for about 10 percent of insurers’ notable capital and surplus impairments triggering regulatory action and concern. Of the remaining 90 percent, by far the single largest cause of impairments over the past 40 years (1969-2009) emanated from inadequate pricing and deficient loss reserves - resulting in approximately 40 percent of the cases.

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Guy Carpenter Publishes Third Installment of “Succeeding Under Solvency II” Guide for Re/Insurers:  Guy Carpenter announced the publication of Succeeding Under Solvency II - Special Considerations for Reinsurers and Counterparty Risk, the third report in the firm’s series on Solvency II preparedness developed for re/insurers operating in or covering risks in Europe. The new report examines: The potential risks to cedents arising from Solvency II; the positive developments for cedents under Solvency II and strategies for managing counterparty default and credit risks.

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Tohoku Quake and Tsunami…An Industry Meets the Challenge - Reinsurance Market Short-Term Implications:  The recent catastrophe in Japan has implications beyond reinsurance rates and balance sheets. Carriers have already begun to watch for rate changes and anticipate changes to catastrophe models. Both issues, along with the capital implications, will set the tone for the industry in the near term.

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GC Securities: Catastrophe Bond Market Surges to Record High for First Quarter Issuance:  The catastrophe bond market posted its most active first quarter on record for new issuance in Q1 2011, according to a new report by GC Securities*. Four transactions came to market in the first quarter of 2011, securing USD1.02 billion of new and renewal risk transfer capacity. This represents a significant increase over the USD300 million issued during the same time period in 2010.

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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 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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And, you may have missed…

Uncover and Mitigate Product Liability Risk: Avert a Casualty Catastrophe:  Danger routinely enters product supply chains. An error at a plant or even a flawed product design could lead to extensive economic damage. While the direct cost of these events comes to mind first, few grasp the full extent of product liability insurance exposure. The integrated business relationships required to bring a product to market mean that one event could trigger a “casualty catastrophe” that sweeps up component manufacturers and distributors - and their insurers.

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* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies, Inc. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

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