May 25th, 2012

Week’s Top Stories: May 19 - 25, 2012

Posted at 9:00 AM ET

Chart: 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 the chart below 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.

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Oliver Wyman: Strategic Impact of Solvency II: Guy Carpenter sister company, Oliver Wyman, has published a new report on Solvency II. The road to implementing Solvency II has been longer and more circuitous than expected. In Oliver Wyman’s joint report with Morgan Stanley, Solvency II: A Long and Winding Road, they provide insights on implementation progress thus far. The report also discusses key debates in the industry, which will have a significant impact upon the insurance landscape across Europe.

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6.0Mw Earthquake in Northern Italy: A strong 6.0Mw earthquake hit northern Italy at 02:03 UTC on May 20, causing severe shaking in the Emilia Romagna region and surrounding areas. Damage has been reported across Emilia Romagna, particularly to historic buildings, commercial properties and agriculture in towns and cities close to the earthquake’s epicenter. According to the U.S. Geological Survey (USGS), the epicenter was within 10 kilometers (6 miles) of the towns of Camposanto, San Felice sul Panaro, Finale Emilia and Crevalcore, and it was also centered a shallow 5.1 kilometers (3.2 miles) underground. Shaking was felt in the nearby city of Bologna and as far away as Milan and Venice, but no major damage was reported there.

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Spring Conditions Suggest Tempered Atlantic Hurricane Season, Part I: On the heels of two very active years, the 2012 April hurricane season forecasts expect that activity will be around 20 percent below the long term average (1950-2011). This briefing discusses how current atmospheric and oceanic patterns will likely reduce storm formation and how these same patterns are expected to contribute to the hurricane steering flow through the heart of the season.

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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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And, you may have missed…

Periodic Payment Orders - Issues and Implications for Reinsurance: Following the passage of the Courts Act 2003, which gave courts in England and Wales the power to impose rest-of-life structured settlements, known as periodical payment orders (PPOs) to provide for the long-term care and loss of earnings of severely injured third parties, the actual incidence of such awards in the market has been relatively low. It is clear however that the trend towards PPOs has accelerated over the past year, partly driven by low interest rates. This trend presents real challenges to both insurers and reinsurers of casualty classes, particularly for motor.

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