August 6th, 2012

GC Capital Ideas Top Stories: July 2012

Posted at 1:00 AM ET

1. July 1 Reinsurance Renewals Reveal Plentiful Capacity amid Benign Catastrophe Activity, According to Guy Carpenter: Reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012. Capital has continued to strengthen through the second quarter of 2012, moderating pricing pressures, according to a briefing released today by Guy Carpenter & Company.

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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. Standard & Poor’s Proposed Insurance Rating Criteria Update: On July 9, 2012, Standard & Poor’s (S&P) issued a Request for Comment on proposed changes to its criteria for rating insurance companies globally. Although S&P expects the overall impact on global ratings to be modest, the proposed changes are significant and may adversely affect individual rated (re)insurers. The new criteria are expected to be published in late 2012 or early 2013.

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4. Guy Carpenter Asia-Pacific Climate Impact Centre Publishes Third Annual Report on Region’s Climate: The Guy Carpenter Asia-Pacific Climate Impact Centre (GCACIC), a joint initiative of Guy Carpenter & Company and City University of Hong Kong, released its third annual report, which presents the findings of the 27 research projects conducted by GCACIC members on climate issues in the Asia-Pacific region in 2011.

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5. Managing Catastrophe Model Uncertainty, Issues and Challenges: Uncertainty is ever present in the insurance business, and despite relentless enhancements in data gathering and processing power, it is still a large factor in risk modeling and assessment. This realization, driven home by model changes and recent unexpected natural catastrophes, can be disconcerting - even frightening - to industry participants.

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6. Plentiful Capacity Sets the Stage at June 1 Reinsurance Renewals: More moderate pricing trends were evident at the June 1, 2012, reinsurance renewals as the relatively light catastrophe loss activity during the first five months of the year contributed to positive reinsurer results and plentiful capacity, according to a briefing released today by Guy Carpenter.

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7. Indexation Clauses in Liability Reinsurance Treaties: A Comparison Across Europe: The Indexation Clause - otherwise referred to as the Stability Clause, Inflation Clause or Severe Inflation Clause (SIC) - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss reinsurance treaty over the duration of the claims payout pattern.

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8. 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.

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9. 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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10. Impact of Solvency II on Primary Insurance Companies: Challenges and Opportunities, Part II: Solvency II’s impact on capital is expected to be significant for most insurance entities, but potentially insurmountable for others. Small and mid-size firms - particularly monoline writers - will be the most vulnerable. Depending on their ability to raise capital, they may have limited options on how to meet the heightened capital requirements.

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