May 9th, 2012

GC Capital Ideas Top Stories: April 2012

Posted at 1:00 AM ET

1. Reinsurance Rates Rise at April 1, 2012 Renewals: Reinsurance rates rose as the market continues to work through the impact of the events of 2011, according to Guy Carpenter. In a briefing released today, Guy Carpenter reports that this year’s April 1 renewals are continuing the general trends observed at January 1, 2012.

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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 (ERM) 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. Spatial and Temporal Earthquake Clustering - Earthquake Aftershocks: EQECAT Perspective: EQECAT recently released a white paper examining earthquake clustering in the context of seismic hazard and loss assessment. The paper, Spatial and Temporal Earthquake Clustering: Part 2 - Earthquake Aftershocks, is EQECAT’s second in a three-part series about spatial and temporal earthquake clustering.

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4. 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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5. Earthquake in Indonesia: A powerful earthquake struck off the Indonesian island of Java at 07:55:01 UTC on September 2, 2009, destroying hundreds of buildings, killing at least 32 people and injuring 305 more.

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6. Finding Success in a Transitioning Market - How Guy Carpenter Can Help: Part I: The difficult 2012 renewals were a culmination of a challenging 12 months for the (re)insurance sector. The heavy catastrophe losses of 2011 came at a time (re)insurers faced serious economic headwinds, with subdued and historically low interest rates. Concern also remains over the sovereign debt crisis in Europe and the prospect of higher inflation in certain key economies. 2012 is likely to be another challenging year for the sector, but growth opportunities exist for companies that have the industry’s best tools, advice and analysis at their disposal.

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7. Severe Weather in United States: More severe weather hit the United States on April 14 and 15, spawning dozens of tornadoes that killed at least five people and caused widespread property damage, according to reports.

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8. European Countries Face Continued Challenges Adapting Local Legislation to EU Legal Requirements: Guy Carpenter published its semiannual report on key legislative developments in Europe affecting liability insurers and reinsurers. A number of these developments underscore the challenges in adapting local legislation and jurisprudence to European Union (EU) and international law.

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9. Guy Carpenter Convenes Local Practitioners for Index-Based Catastrophe Micro(re)insurance Seminar in Mozambique: Guy Carpenter, in conjunction with Asia Risk Centre (ARC), a division of RMS, held a training seminar in Maputo, Mozambique on the development, design and application of index-based approaches to catastrophe micro(re)insurance in low-income countries. The event took place as part of the organizations’ joint project under International Finance Corporation’s Global Index-Insurance Facility (GIIF) initiative, of which Swiss Re is a strategic partner. The event occurred in March, 2012.

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10. 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.

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