January 6th, 2012

Week’s Top Stories: December 31, 2011 - January 6, 2012

Posted at 10:00 AM ET

2011 Catastrophe Update: Historical Global Losses, Cluster of Costly International Losses: 2011 has been an unusually eventful year for the (re)insurance sector. In addition to the challenging economic environment and major catastrophe model updates, (re)insurers were hit by an exceptional accumulation of global natural catastrophes. Two of the most damaging earthquakes in recent times struck Japan and New Zealand early in the year, causing huge losses. Several other significant events, including devastating floods in Thailand and Australia, a record breaking tornado season in the United States and Hurricane Irene making landfall along the U.S. east coast, combined to cause insured losses of around USD108 billion in 2011.

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GC Podcast 17 - 3rd Q 2011 Reinsurance Sector Financials, Preview of 4th Q (David Flandro) Guy Carpenter Global Head of Business Intelligence David Flandro discusses 3rd Quarter 2011 reinsurance sector financials, their impact on January 1 renewals and a preview of 4th Q data in this new GC Capital Ideas podcast. Download the interview in a file that will work with your computer or iPod.

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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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2011 Catastrophe Update: Historical Global Losses, Expensive Losses in the United States, Tropical Cyclones, Outlook for 2012: Significant weather-related losses also occurred in the United States in 2011 after one of the worst tornado seasons on record caused a combined insured loss of around USD20 billion. The La Niña event helped create the necessary conditions for tornado formation (warm/humid air and strong south winds near the surface, with colder air and strong westerly winds in the upper atmosphere). A very strong jet stream also contributed to the favorable conditions. If considered a single event, the tornado losses in the second quarter would have ranked as the fourth most expensive disaster in U.S. history, according to the Insurance Information Institute.

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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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And, you may have missed…

Solvency II: Assessing Counterparty Default Risk: Counterparty default risk is one of the core components of the SCR. This module has undergone substantial change over the several quantitative impact studies, as the supervisors attempted to find an appropriate measure of the risk. In the QIS 5 final report, EIOPA noted that this module received the most criticism for the “overly complex approach” relative to the materiality of counterparty default risk within the overall risk-based capital requirement. We expect to see additional changes that will simplify the calculation of risk.

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