First Six Months 2011: Subdued Merger and Acquisition Activity: The recent volatility in the financial markets and the difficult operating environment in general continue to stifle merger and acquisition (M&A) activity. Property/casualty (P&C) M&A activity for risk-bearing entities in the first half of 2011 was at a similar level to that seen in the past two years. There were 22 announced and closed transactions with an aggregate deal value of almost USD3.4 billion during the first half of 2011. In terms of transaction value, this pace is on track to match the level seen during 2009 and 2010.
Terror Attacks at Historically High Levels, Still Pose Threat to (Re)Insurance Industry, According to Guy Carpenter Report: A new report on global terrorism and the terror reinsurance market, released by Guy Carpenter, finds that while recorded incidents of terror around the world remain at historically high levels and terrorism remains a serious risk to the (re)insurance industry, the industry continues to meet the current demands for terrorism risk transfer.
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.
Update: U.S. Credit Downgrade Implications: Standard & Poor’s has downgraded the U.S. sovereign debt rating to AA+ from AAA. Implications for (re)insurers worldwide are mixed. Although there are broad economic implications, markets appear to have anticipated at least some of these, which could forestall rash or catastrophic outcomes. The long-term effects, however, could be profound.
Chart: Cat Bond* Risk Capital Issued and Outstanding 1997 - 2011 Q2: The second quarter of 2011 saw four catastrophe bonds come to market, totaling USD592 million of new bond issuance.
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Alternatives to Alternative Capital: (Re)insurers have come to expect that alternative sources of capital will always be available. Private equity funds, hedge funds, and other alternative investment vehicles have contributed copious capacity to risk-bearers since the turn of the millennium, and especially following the 2005 storm season. The well, however, may be at risk of running dry.
* 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.