May 30th, 2011

Top GC Capital Ideas Stories of May 2011

Posted at 1:00 AM ET

1. Tohoku Quake and Tsunami…An Industry Meets the Challenge - Economic Impact: Now that we are more than a month on from the Great Tohoku Earthquake, the (re)insurance industry can take advantage of hindsight to understand the implications of this tragedy and take steps to improve capital management for the future, in order to better protect cedents and original insureds. Of course, the situation remains fluid. New information continues to become available, and that will have a salient impact on the actions that (re)insurers take as a result of the catastrophe. Yet, there is some early information that carriers can use to manage their capital.

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2. 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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3. 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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4. Guy Carpenter Publishes Third Installment of “Succeeding Under Solvency II” Guide for Re/Insurers: Guy Carpenter & Company 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 first two reports addressed re/insurance industry requirements and key issues under Pillars I, II and III.

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5. 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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6. 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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7. Tohoku Quake and Tsunami…An Industry Meets the Challenge - Impact on Commercial Insurance: Bowring Marsh is the International placement arm of Marsh, where we advise our global network and clients on direct, market based solutions, predominantly for property and casualty exposures. The vast majority of our clients are sophisticated, risk management buyers with an emphasis on global, multinational businesses.

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8. 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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9. Guy Carpenter Expands Asia Flood Modeling Capabilities: Guy Carpenter & Company announced that it has extended the coverage of its Asia flood model to include the main flood risk areas in Jakarta, Indonesia.

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10. Guy Carpenter Publishes Second Part of Re/Insurance Industry’s Guide to Succeeding Under Solvency II: Guy Carpenter & Company released a new briefing, Succeeding Under Solvency II - Corporate Governance (Pillar II) and Disclosure (Pillar III), the second report in a special series for re/insurers operating in or covering risks in Europe. The first report, published earlier this month, focused on Pillar I requirements.

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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. 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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