January 5th, 2012

GC Capital Ideas Top Stories: December 2011

Posted at 1:00 AM ET

1. Guy Carpenter Examines Multi-Model Approach in New Report on Managing Catastrophe Model Uncertainty: The report addresses the merits of adopting a multi-model approach to estimate risk and control uncertainty. Three strategies for using multiple models are examined: model blending, model morphing and model fusion. The study also provides extensive background on how catastrophe models are used and the potential sources of uncertainty in cat model results.

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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. Update: Floods in Thailand: Thailand has experienced its worst flooding in years over the last few months, leaving more than 420 people dead and causing severe damage across northern and central regions of the country. The floods have severely damaged and disrupted manufacturing operations in Thailand. Flooding has forced at least seven huge industrial estates in central regions to close, prompting the Federation of Thai Industries (FTI) to warn that damage to the industrial sector will be in the billions of dollars. It is interesting to note that none of the industrial plants in Thailand have been flooded in the past 40 years or so.

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4. Industry Good Practice for Catastrophe Modeling & Solvency II - A Perfect Opportunity for Review: Part I, Background and General Principles: The UK insurance industry, supported by the Association of British Insurers (ABI), has developed a report “Industry Good Practice for Catastrophe Modeling & Solvency II” to guide companies’ use of catastrophe modeling under Solvency II.

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5. Marsh: Key Risk Management Issues in 2011: Marsh’s Risk Spotlight series are monthly briefs from some of Marsh’s top risk and insurance experts. We present here a compilation of all the 2011 stories. They covered a range of topics, starting with the role of data and analytics in our industry and ending with a focus on the ever-changing world of employee benefits. In between, Marsh sought to highlight innovations in such areas as catastrophe modeling trends, managing workers’ compensation costs, the implications of new government regulations and more.

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6. Chart: Guy Carpenter Global Reinsurance Composite - Change in Reported Shareholders’ Funds, 9 Months 2011

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7. GC Securities* Catastrophe Bond Market Update: Third Quarter 2011, Part II: Consistent with seasonal trading patterns, ILW activity tailed off in the third quarter relative to pre-U.S. wind season levels. Prices were driven down by increased available capacity (from sellers looking to take advantage of price increases available at the conclusion of the first quarter) and a demand reduction from protection buyers as the U.S. wind season proved less damaging than forecasts suggested.

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8. Chart: Catastrophe Bond Issuance: 1Q-3Q, 1997-2011YTD: Risk capital issued in the third quarter more than doubled from the third quarter 2010. Last year, two transactions resulted in USD232 million in risk capital issued, while this year, USD512 million of risk capital was issued through three transactions.

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9: Marsh & McLennan Companies Executives Named ‘Women to Watch’ by Business Insurance: Marsh & McLennan Companies, Inc. announced that two of its executives in its Marsh and Guy Carpenter subsidiaries have been named ‘Women to Watch’ by Business Insurance magazine.

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10. Spatial and Temporal Earthquake Clustering: An Overview of EQECAT’s Perspective - Part I: Summary, Mega-thrust Earthquakes: The recent major earthquakes that have occurred in Chile (February 2010), New Zealand - Canterbury (September 2010), New Zealand - Christchurch (June 2011) and Tohoku (March 2011) have raised questions such as: Do earthquakes of major intensity cluster around the world? Have there been other, previous series of major earthquakes around the world? Are other major earthquakes more likely to occur in the very near future, if so where? These are all very challenging questions. This briefing begins to answer some of them.

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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, Inc. 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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