October 3rd, 2011

GC Capital Ideas Top Stories: September 2011

Posted at 1:00 AM ET

1. Uncertain Market Ahead for Reinsurance Industry, Finds Guy Carpenter’s 2011 World Catastrophe Report: A number of developments in 2011 have created an uncertain market for the reinsurance industry as it begins to focus on next year’s renewals, according to 2011 World Catastrophe Reinsurance Market Report, released by Guy Carpenter & Company. These developments range from elevated global catastrophe activity to catastrophe model changes that have altered risk perceptions and changed expected loss amounts.

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2. Guy Carpenter Addresses Insurer Strategies for Profitable Growth At Monte Carlo Rendez-Vous 2011: In its fourth annual press briefing held at the Reinsurance Rendez-Vous 2011 in Monte Carlo, Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist, identified and explored insurers’ opportunities for growth in today’s uncertain (re)insurance market.

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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. 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.

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5. Record Catastrophe Losses of 2011 Could Impact 2012 Pricing: The first six months of 2011 experienced heavy losses from an exceptional accumulation of global natural catastrophes. A series of powerful earthquakes in Japan and New Zealand, combined with multi-billion dollar payouts from tornadoes and floods in the United States and Australia, meant the (re)insurance sector experienced the costliest first half on record in accident-year terms. Insured losses of about USD70 billion are estimated for the period. These losses are more than five times higher than the first-half average for the past 10 years and second only to the full 12-month loss of 2005.

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6. A Multi-Model Approach to Catastrophe Risk Assessment: Catastrophe models are very useful in assessing risk exposure, and it is no surprise that they have become essential tools for any insurer underwriting catastrophe loss coverage. But in recent years, they have evolved from useful supplemental tools to forces in their own right. Today, model revisions can become disruptive events affecting large segments of the industry - as we have seen over the past year with major changes to models by RMS and AIR.

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7. Guy Carpenter Publishes Update to “Succeeding Under Solvency II” Series: Guy Carpenter & Company released the report Succeeding Under Solvency II - A Guide to the New Industry Landscape, the newest update in the firm’s series on Solvency II preparedness.

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8. 2012 Reinsurance Renewals: Market conditions at the January 1, 2012 renewal will be influenced by loss experience in the remainder of the year, and the 2011 hurricane season, in particular. A quiet hurricane season with no damaging landfalls could enable reinsurance capital to resume growth, while a busy season with at least one significant landfall will put an additional strain on the sector’s capital position.

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9. Update: Hurricane Katia: Katia became the second hurricane of the 2011 Atlantic hurricane season yesterday when it reached category 1 status. Katia has since weakened back to a tropical storm as it encounters less favorable conditions. The storm currently packs sustained winds of around 70 mph (110 kmph), equivalent to a strong tropical storm, according to the National Hurricane Center (NHC). The storm is currently located approximately 750 miles (1,205 kilometers) east of the northern Leeward Islands. Katia is traveling in a west-northwest direction and a change in track towards the northwest is expected over the next couple of days. The NHC said tropical storm force winds extend 175 miles (280 kilometers) from the center of the storm.

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10. Solvency II: Changing the Game: Market consensus holds that Solvency II will ultimately benefit reinsurers, as primary insurers faced with higher risk-adjusted capital requirements will turn to the reinsurance market as a relatively inexpensive source of additional capital and risk transfer. This assumption, however, conceals numerous challenges - and several opportunities - that Solvency II presents.

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