October 7th, 2011

Week’s Top Stories: October 1 - 7, 2011

Posted at 10:00 AM ET

Oil Refinery Fire, Bukom Island, Singapore: A large fire broke out at Royal Dutch Shell’s massive Pulau Bukom refinery near Singapore on September 28, damaging parts of the plant and prompting the closure of some units at the facility. Reports said the fire at the 500,000 barrels-a-day refinery in Pulau Bukom, an island 5 kilometers (3 miles) off Singapore, started at about 13:15 local time (05:15 UTC) and has now been burning for more than a day. Eyewitnesses also reportedly heard three large explosions at the facility. Reports said the fire is the worst to affect the site in 23 years.

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Solvency II: Changing the Game:  Changing regulatory requirements have remained high on the industry agenda this year, with particular attention focused on Solvency II. 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, mandating sweeping changes to capital requirements, corporate governance programs and disclosure practices. 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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Catastrophe Bond Market Diversification: In a break from the historical precedent, strong demand for diversifying peril-exposed transactions is contributing to a more active than usual third quarter for catastrophe bond issuance. Munich Re closed its USD150 million European windstorm bond on July 28 (with GC Securities* as sole bookrunner) with strong execution. The 1.95 percent expected loss transaction was priced at Treasury Money Market (TMM) + 4.75 percent (the initial price guidance was TMM + 5.25 percent to + 5.75 percent) and was concurrently upsized 200 percent from USD50 million. Embarcadero Re, a USD150 million transaction that provides the California Earthquake Authority (CEA) with earthquake protection, closed on August 1 and was reportedly over-subscribed.

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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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Solvency II’s Impact on the Reinsurance Market: Key Benefits: In assessing the financial security of reinsurance counterparties, cedents often struggle to reconcile disparate accounting treatments across various domiciles. Disclosure requirements under Solvency II’s Pillar Three and market consistent accounting standards will bring a high level of convergence to reports and accounts in Europe and equivalent jurisdictions. This will greatly facilitate the analysis of reinsurer financial strength.

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And, you may have missed…

TRIA, U.S. Terrorism and International Terrorism: Effect on the Insurance and Reinsurance Markets:  Commercial insurers are strongly supportive of the Terrorism Risk Insurance Act of 2002 (TRIA), as it provides them an ultimate safety net for their terrorism exposures. However, the residual risk for terror events retained by insurers below the triggers and retention levels set by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), coupled with the relatively high cost of reinsurance in key exposure zones, means that insurers remain cautious about terrorism exposure. As a result, they continue to avoid accumulating high-profile urban exposures.

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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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