Archive for March, 2012



March 30th, 2012

Week’s Top Stories: March 24 - 30, 2012

Posted at 10:14 AM ET

What to Watch in 2012, Part I: 2012 will undoubtedly be a challenging year, but Guy Carpenter believes that growth opportunities exist - or can be created - for companies that have the fortitude to see and develop them. Below we examine 10 major themes that the (re)insurance sector will face in 2012.

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Alternative Risk Transfer: Part I, Adverse Development Cover, Aggregate Stop Loss: Alternative risk solutions are used to address the following client motivations: rating agency issues, adverse development, earnings stability, reserve and premium leverage issues, reinsurance recoverables, terrorism risk, capital optimization constraints, mergers and acquisitions, discontinued lines of business, provide coverage for gaps in traditional placements and optimizing costs. The structured risk team designs customized solutions to achieve a particular client’s goals. An optimal reinsurance structure is determined by capacity needs, risk tolerances, capital management, cost of risk and degree of confidence in results. A cedent will need to balance the cost of transferring sources of risk with not only its own capital management strategies but also capital requirements imposed by rating agencies.

Read the article >>

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.

Read the article >>

Catastrophe Bonds: 2011 Review - Activity, Risk Capital Outstanding: 2011 was a year of significant activity for catastrophe risk investors and sponsors. As of December 9, 2011, the total 144A property catastrophe bond issuance for the year stood at USD3.86 billion, which is 84 percent of the USD4.6 billion issued during the 2010 calendar year. By the end of 2011, total issuance is expected to exceed USD4.0 billion, and a deep pipeline of transactions exists for the first half of 2012 and beyond.

Read the article >>

Terrorism: Unstable Territories, Implications of Middle East and North Africa Unrest and Future Risks: It is interesting to note that Maplecroft’s TRI has Somalia and Yemen showing an increasing trend of terrorist activity, as both countries are deeply unstable and some ungoverned regions have become havens for militant groups. As noted above, AQAP in Yemen is now considered to be one of the most significant risks to the Western world. The rising terrorist threat emanating from Somalia, meanwhile, means the country now tops Maplecroft’s TRI.

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Most Popular Keyword:   cat risks

 

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Industry Issues and Trends: Domiciles: Reinsurers Look to Europe: Since 2005, a notable shift in reinsurers’ domiciles has taken place. Europe’s transition towards risk-based capital requirements has prompted global regulators to call for some level of equivalence in key markets. This has, in turn, prompted carriers to reassess corporate structures, with a particular eye to the location of group balance sheets.

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March 29th, 2012

What to Watch in 2012, Part II

Posted at 1:00 AM ET

2012 will undoubtedly be a challenging year, but Guy Carpenter believes that growth opportunities exist - or can be created - for companies that have the fortitude to see and develop them. Below we examine Themes 6 through 10 of the 10 major themes that the (re)insurance sector will face in 2012. (Themes 1 through 5 were examined in a prior GC Capital Ideas post.)

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March 28th, 2012

What to Watch in 2012, Part I

Posted at 1:00 AM ET

Opportunities Amid Uncertainty in the Year Ahead

2012 will undoubtedly be a challenging year, but Guy Carpenter believes that growth opportunities exist - or can be created - for companies that have the fortitude to see and develop them. Below we examine 10 major themes that the (re)insurance sector will face in 2012.

Continue reading…

March 27th, 2012

Alternative Risk Transfer: Part II, BCAR Impact, Quota Share and Working Layer Excess of Loss Covers

Posted at 1:00 AM ET

BCAR Impact

Purchasing an aggregate stop loss provides a positive impact to the BCAR score by decreasing the capital charge. In year one, the benefit of the purchase is applied to the premium risk charge for the current accident year with benefit to the reserve risk charge in future years. In the first year, the accident year stop loss may reduce the premium risk charge significantly. The biggest reduction in the premium risk charge will occur when the stop loss provides protection between A.M. Best’s estimate of the expected loss ratio and 35 percent to 45 percent above that estimate. The decrease in the capital factor is equal to the limit purchased net of the AP that must be paid in the event of a loss. Surplus is reduced by the after-tax margin paid. For the second year, the reduction in capital charge is applied against the loss reserves. This reduces the benefit in the second year from that achieved in the first year, as the reserves are net of loss payments made in year one.

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March 26th, 2012

Alternative Risk Transfer: Part I, Adverse Development Cover, Aggregate Stop Loss

Posted at 1:00 AM ET

Alternative risk solutions are used to address the following client motivations: rating agency issues, adverse development, earnings stability, reserve and premium leverage issues, reinsurance recoverables, terrorism risk, capital optimization constraints, mergers and acquisitions, discontinued lines of business, provide coverage for gaps in traditional placements and optimizing costs. The structured risk team designs customized solutions to achieve a particular client’s goals. An optimal reinsurance structure is determined by capacity needs, risk tolerances, capital management, cost of risk and degree of confidence in results. A cedent will need to balance the cost of transferring sources of risk with not only its own capital management strategies but also capital requirements imposed by rating agencies.

Continue reading…

March 23rd, 2012

Week’s Top Stories: March 17 - 23, 2012

Posted at 10:30 AM ET

Catastrophe Bonds: 2011 Review - Activity, Risk Capital Outstanding: 2011 was a year of significant activity for catastrophe risk investors and sponsors. As of December 9, 2011, the total 144A property catastrophe bond issuance for the year stood at USD3.86 billion, which is 84 percent of the USD4.6 billion issued during the 2010 calendar year. By the end of 2011, total issuance is expected to exceed USD4.0 billion, and a deep pipeline of transactions exists for the first half of 2012 and beyond.

Read the article >>

Industry Loss Warranty Market: The industry loss warranty (ILW) market has seen a robust start to the 2012 renewal season with all major clients having bound significant limits in recent days/weeks. The ILW market tends to react to shortages of capacities in other areas of the market, mostly the ultimate net loss (UNL) retro market. The UNL retro market has been relatively dysfunctional, and most client programs are taking longer to place with a potential for short placement. The wider ILW market has therefore not seen the amount of activity normally associated with this time of year, and clients will look to ILWs in the coming days to bolster any shortfalls in coverage. Some markets have reported a drop in activity compared to last renewal as a result of this delay in the placement process.

Read the article >>

Capital Management: Reinsurance Valuations at a Long-Term Low: The challenging macroeconomic environment of subdued growth and low interest rates meant the reinsurance sector ended 2011 trading near 20-year lows. As Figure 1 illustrates, the average price to book ratio for the sector of 0.893 is just greater than one and a half standard deviations down from the 20-year average of 1.32. The sovereign debt crisis, threat of a double-dip recession, heavy non-peak zone catastrophe losses during 2011 and concerns about reserve adequacy are among the factors contributing to volatility and low valuations. Additionally, despite the heavy losses incurred during 2011, many reinsurers are still perceived to have excess capital relative to projected earnings and top-line growth.

Read the article >>

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.

Read the article >>

Property & Casualty M&A Outlook for 2012: M&A Drivers Going Forward: Guy Carpenter sees several potential merger and acquisitions (M&A) drivers in 2012 and beyond.

Read the article >>

 

Most Popular Keyword:  periodic payment orders

 

And, you may have missed…

Terrorism: Unstable Territories, Implications of Middle East and North Africa Unrest and Future Risks: It is interesting to note that Maplecroft’s TRI has Somalia and Yemen showing an increasing trend of terrorist activity, as both countries are deeply unstable and some ungoverned regions have become havens for militant groups. As noted above, AQAP in Yemen is now considered to be one of the most significant risks to the Western world. The rising terrorist threat emanating from Somalia, meanwhile, means the country now tops Maplecroft’s TRI.

Read the article »

 

Click here to register to receive e-mail updates >>

March 23rd, 2012

Alexander Moczarski, President and CEO of Guy Carpenter, Assumes Chairmanship of Marsh & McLennan Companies International

Posted at 1:00 AM ET

Marsh & McLennan Companies announced that Alexander Moczarski, President and CEO of Guy Carpenter, has assumed the additional role of Chairman, Marsh & McLennan Companies International.

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March 22nd, 2012

Industry Loss Warranty Market

Posted at 1:00 AM ET

The industry loss warranty (ILW) market has seen a robust start to the 2012 renewal season with all major clients having bound significant limits in recent days/weeks. The ILW market tends to react to shortages of capacities in other areas of the market, mostly the ultimate net loss (UNL) retro market. The UNL retro market has been relatively dysfunctional, and most client programs are taking longer to place with a potential for short placement. The wider ILW market has therefore not seen the amount of activity normally associated with this time of year, and clients will look to ILWs in the coming days to bolster any shortfalls in coverage. Some markets have reported a drop in activity compared to last renewal as a result of this delay in the placement process.

Continue reading…

March 21st, 2012

Catastrophe Bonds: 2011 Review - Market Dynamics, Outlook

Posted at 1:00 AM ET

Market Dynamics

Though primary issuance is likely to be down relative to 2010, 2011 stands as one of the most active, innovative and robust years in the convergence market’s history. Catastrophe loss activity was significant. For the year, current estimates suggest as much as USD100 billion of global insured catastrophe related losses, making 2011 one of the costliest years on record. Notably, 70 percent of this total is associated with catastrophe events outside of the United States. As mentioned previously, the 144A catastrophe bond market also sustained principal losses during 2011. The Tohoku earthquake, which occurred off the northeast coast of Japan on March 11, 2011, caused a total loss to the USD300 million Muteki Ltd. transaction. The severe convective storm activity, which included tornadoes, hail and thunderstorms, that affected the central and southern United States during the spring and summer prompted what is now expected to be a total loss to the USD200 million Mariah Re Ltd. bonds. In addition to this loss activity, market participants contended with a host of issues. These included a controversial revision to one of the most commonly utilized US windstorm models, differing views on the implementation schedule and impact of the Solvency II regulatory framework, tumultuous global financial markets and a highly uncertain geopolitical environment.

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March 20th, 2012

Catastrophe Bonds: 2011 Review - Issuance Composition

Posted at 1:00 AM ET

Over the course of 2011, 14 sponsors brought 18 transactions to the 144A market. In terms of transaction count, this places 2011 equal to 2009 as the second most active year in the history of the market. The 2011 sponsor class also included three first-time sponsors and the inaugural securitization of California state workers compensation losses associated with California earthquake events.

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