August 10th, 2011

GC Capital Ideas Top Stories: July 2011

Posted at 1:00 AM ET

1. Market in Transition at July 1, 2011 Reinsurance Renewals, According to Guy Carpenter:  The July 1, 2011 reinsurance renewals revealed a market that continues to be in transition, according to Guy Carpenter & Company. In the first quarter of 2011, the reinsurance sector’s dedicated capital position fell by 4.4 percent to about USD165 billion. In the second quarter, reinsurance capital remained essentially flat and moderately down year-to-date. While the global catastrophe losses of 2011 and the version 11 release of Risk Management Solutions, Inc.’s catastrophe model (RMS v11) have impacted reinsurers’ view of risk, the longer-term implications remain to be seen. This will come into sharper focus when recent event losses are fully realized and the industry reaches consensus on the integration of the model changes.

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2. 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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3. Wide Range of Outcomes Seen in June 1, 2011, Florida Reinsurance Renewals:  The June 1, 2011, renewals took place against the backdrop of record first-half catastrophe losses and uncertainty surrounding the release of version 11 of Risk Management Solutions’ (RMS) U.S. hurricane model. The heavy international natural catastrophe-related losses that occurred during the first quarter of 2011 - combined with the multi-billion dollar losses from tornadoes in the United States in April and May - have added to significant loss activity over the past 16 months, culminating in insured losses of close to USD100 billion.

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4. Guy Carpenter Forms Alliance with EagleEye Analytics To Help Insurers Optimize Risk Selection and Pricing: Guy Carpenter & Company announced its alliance with EagleEye Analytics, Inc., the leading provider of world-class predictive analytics solutions to the property and casualty insurance industry.

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5. Chart: U.S. Property Catastrophe Rate on Line Index Update:  Chart presents historical pricing activity through July 1, 2011.

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6. Succeeding Under Solvency II: Pillar One, Capital Requirements; Part I: Despite its nominally European focus, Solvency II presents a wide range of considerations - and opportunities - to insurance entities worldwide. This new regulatory framework will enact a fundamental change in the way the European insurance industry looks at risk and risk management practices, as it will force the convergence of all aspects of risk quantification with those of business decision making. All businesses that have operations, subsidiaries or affiliates in Europe, write coverage in Europe or do business with insurers in Europe should be preparing now for these wide-ranging changes.

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7. Guy Carpenter Releases the First Hail Model For the Slovenian Insurance Market:  Guy Carpenter & Company announced that it has developed the first hail model for Slovenia, following the 2010 creation of a flood model for the country.

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8. Bombing and Shooting Attacks, Oslo, Norway: Twin bombing and shooting attacks in Norway’s capital of Oslo killed at least 93 people and injured around 100 more on July 22, in western Europe’s deadliest attack since the 2004 Madrid bombings. According to reports, a Norwegian national with rightwing views detonated a car bomb in the government district of Oslo before traveling to an island outside of the city and gunning down youths at a summer camp. The bomb in Oslo targeted buildings connected to Norway’s governing Labor Party, and the youth camp on Utoya Island was also run by the party.

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9. Guy Carpenter Introduces MetaRisk® 6.0 For Enhanced Risk and Capital Management Decision Making: Guy Carpenter & Company announced the release of MetaRisk 6.0, the latest version of the firm’s risk and capital decision tool. MetaRisk gives users the ability to interact with the drivers of risk in order to understand systemic and unique risk sources, reflect correlations among assets and liabilities, allocate capital and the cost of reinsurance, monitor earnings volatility and quantify overall capital adequacy.

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10. Chart: Significant Catastrophic Losses - 2010 to Q2 2011: This chart shows the accumulation of significant losses over the last 18 months. The losses sustained so far in 2011 have already surpassed those recorded in 2010 and 2009 combined.

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